Gold dropped by half a percentage point on Monday, retreating from two-month highs under pressure from a strengthening dollar and a slight easing of tensions between the United States and North Korea. Though North Korea's Liberation Day celebration on Tuesday could raise the temperature again, markets were relieved that the weekend passed without more inflammatory rhetoric.
Elsewhere, the dollar rose from last week's four-month lows against the yen and traded up against a currency basket, making dollar-priced gold costlier for non-U.S. investors.
"A lot of the negative news is priced into the dollar. That, combined with no real escalation in North Korea, should lead to lower gold prices, though it doesn't mean we expect a very negative trend. We'll stay within the $1,200 to $1,300 range for the year," said ABN Amro strategist Georgette Boele.
Spot gold fell 0.55 percent to $1,281.75 an ounce, having reached its highest since June 7 at $1,291.86 in the previous session.
U.S. gold futures for December delivery settled at $1,290.40 per ounce.