Treasury yields near 3 percent rattle stocks, underpin dollar.
Palladium sank 5 percent on Monday amid U.S. hints it might relieve sanctions on Russia's Rusal, while gold hit a two-week low as investors piled into the dollar with U.S. Treasury yields approaching 3 percent.
The United States said it could give sanctions relief to Russian aluminum giant Rusal if Oleg Deripaska cedes control of the company, easing fears Washington might extend sanctions to major palladium producer Nornickel.
Nornickel, by far the world's largest palladium producer, is linked with both Rusal and Deripaska, and fears it might be targeted by U.S. sanctions had sent prices soaring since April 6, when sanctions were imposed.
Spot palladium dropped 4.43 percent to $984.43 an ounce at 2:21 p.m. ET, near session lows of $978.22 an ounce.
A stronger dollar makes dollar-priced gold costlier holders of other currencies. "If we break above (3 percent) it will be first time in 5 years this has happened and this increases opportunity cost of holding (non-yielding) gold," said Mitsubishi analyst Jonathan Butler.
But he said the reason yields were rallying was because interest rates were expected to climb due to rising inflation. "If inflation is rising, gold provides a hedge," he said, adding there was also longer term upside for gold from geopolitical tensions and a U.S. currency stuck in a long-term downtrend as global central banks begin raising rates.
Gold, seen as a safe haven in times of political turmoil, was also under pressure after North Korea said at the weekend it would suspend nuclear and missile tests before planned summits with South Korea and the United States.
Added to this were signs that U.S. China relations might be thawing. Speculators raised their net long or buy positions in COMEX gold by 5,382 contracts to 143,594 contracts in the week to April 17, U.S. data showed on Friday.