Gold fell more than one percent to a 5-1/2-month low on Monday, as the dollar and Treasury yields strengthened on expectations that President-elect Donald Trump will boost U.S. spending.
"Gold is suffering from an irrational dollar rally on expectations Trump's fiscal policies will boost spending and therefore inflation, which could lead to higher U.S. interest rates," said ActivTrades chief analyst Carlo Alberto de Casa.
"However, uncertainty about the U.S. economic outlook and also about international risk events such as the Austrian presidential election and the Italian constitutional referendum next month could have an impact on wider markets and impact gold's trading in the medium term."
Spot gold was down 0.58 percent at $1,218.63 an ounce by 3:54 p.m EDT. The metal fell 1 percent to $1,212.26 an ounce earlier in the session - its lowest since June 3.
U.S. gold futures were down 0.48 percent at $1,218.40 per ounce.
The dollar rose to an 11-month high against a basket of major peers, while yields on the U.S. 10-year Treasury notes climbed to their highest since January at 2.2 percent.
A broad sell-off in global commodities and surging bond yields had seen the metal dipping nearly 3 percent in the previous session.
"People seem to have unwound their Trump-risk and are now talking more about 'Trumpflation'," said Jeffrey Halley, senior market analyst at OANDA.
"The rate hike in December is an absolute done deal now."
The market is now betting on the Federal Reserve raising interest rates more quickly.
Higher U.S. interest rates could lift the opportunity cost of holding non-interest-bearing gold. Fed Vice Chair Stanley Fischer said on Friday that U.S. economic growth prospects appeared strong enough for the Fed to proceed with a gradual increase in interest rates.
"We are still negative on gold short-term in light of a stronger dollar, rising rates and rising equities," said INTL FCStone analyst Edward Meir.
The market is also betting on the Federal Reserve raising interest rates more quickly. The metal is highly sensitive to rising U.S. interest rates, which can lift the opportunity cost of holding non-interest-bearing gold.
"The rate hike in December is an absolute done deal now," Halley added.
Fed Vice Chair Stanley Fischer said on Friday that U.S. economic growth prospects appear strong enough for the Fed to proceed with a gradual increase in interest rates.
"We are still negative on gold short-term in light of a stronger dollar, rising rates and rising equities," said INTL FCStone analyst Edward Meir.
SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.76 percent to 934.56 tonnes on Friday.
Spot gold may find support in a zone of $1,204-$1,210 per ounce and bounce moderately before falling, as suggested by its wave pattern and a Fibonacci ratio analysis, according to Reuters technical analyst Wang Tao.
Silver rose 0.14 percent to $17.36 an ounce. Earlier in the session, it touched its worst since June 9 at $17.00.
Platinum was up 0.7 percent at $677.40 while palladium was unchanged at $672.22 an ounce.