Gold settled lower on Monday, on track for its biggest annual loss in more than three decades at nearly 30 percent, as rising appetite for risk and the prospect of a global recovery tarnished its allure.
European stocks hovered around five-year highs after two weeks of strong gains, following from a six-year peak in Japanese shares.
"What's currently driving investors is the idea that commodities are out of fashion and equities are in demand,'' said Peter Fertig, owner of Quantitative Commodity Research. "And, with low inflation pressures, there is still some downside risk for gold as long as the stock market remain relatively robust.''
Spot gold fell to a session low of $1,200.79 an ounce in earlier trade and was last down 0.7 percent to $1,204 an ounce, while U.S. gold futures for February delivery ended 0.8 percent lower at $1,203.80 an ounce.
"For the time being, price moves will be exaggerated by the lack of liquidity ... but in the absence of any fresh macro news, I don't think we are going to break below $1,190 or above $1,225,'' MKS SA head of trading Afshin Nabavi said.
Gold's performance in 2013 has put an end to 12 straight years of growth, with prices hit by the U.S. central bank's decision to rein in its monetary stimulus, which will raise the opportunity cost of holding the non-yielding asset.
Expectations that the U.S. economy will improve and the rest of the world's growth will stabilize in 2014, have further undermined the case for holding bullion, as investors look to put their money in riskier assets like equities.
For more information on precious metals, please click here.