"Retail demand is very strong since prices came off," Heraeus trader Alexander Zumpfe said. "Overall, physical demand is lending some support – Asia is also showing steady buying interest, though not on extreme levels."
A 0.4 percent fall in the dollar index took some pressure off of gold. A stronger dollar makes assets priced in the U.S. unit more expensive for holders of other currencies.
Appetite for other assets is also improving. European stocks rose, with investors bullish after Wall Street posted a fourth straight record close and Tokyo's Nikkei hit a seven-year high.
Read More'Devil's metal' burns investors as gold melts down
Gold's inability to retain Friday's 3 percent jump suggests investors are selling into rallies, expecting more losses on the back of the U.S. economic recovery, a robust dollar and expectations that the Federal Reserve will raise rates sooner rather than later.
Gold could fall towards $800-$900 an ounce, a level not seen since the 2008/2009 financial crisis, as the metal is no longer seen as a decent portfolio diversifier, hedge fund Red Kite said on Monday.
Holdings of the world's largest gold-backed exchange-traded fund, SPDR Gold Trust, fell 1.8 tons on Monday to 725.36 tons, a six-year low. The fund has seen outflows of 15.8 tonnes so far this month.