Gold had rallied last month on speculation that the softness in the global economy could prompt the Fed to delay raising rates until next year. But the U.S. central bank's hawkish tone last week triggered a fresh sell-off in bullion.
"We built up a lot of longs in the market the last five or six weeks, and a good portion of it's coming out with the interpretation of the Fed statement," said James Steel, chief metals analyst for HSBC Securities in New York.
Higher interest rates would weigh on gold because they lift the opportunity cost of holding the non-yielding asset.
"The fact that the Fed is prepared to raise rates even when inflation is quite low is bearish to gold in the short term," said Macquarie analyst Matthew Turner.
Technical selling also sent prices lower, analysts said, with gold expected to test support at $1,131, said Reuters technicals analyst Wang Tao.
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Asian gold demand saw some improvement toward the end of last week as lower prices attracted buyers. But local premiums remained largely unmoved, a sign that demand has not picked up in a significant way, dealers said.
Physical demand outside of Asia also softened. U.S. Mint American Eagle gold coin sales slumped 73 percent in October.
Data on Friday showed that speculators trimmed a bullish bet in gold from an 8-1/2-month high in the week ended Oct. 27.
In other precious metals, palladium took the biggest hit and dropped 4.5 percent to a five-week low of $642.97 an ounce.
Spot platinum fell 0.7 percent to $975 an ounce, and silver was down 0.8 percent at $15.39.