Gold prices dipped on Monday as the dollar firmed in the wake of indications from the U.S. Federal Reserve last week that it will pursue a tighter monetary policy.
The Fed raised U.S. interest rates last week and said it planned four more increases by the end of 2019 and another in 2020, amid steady economic growth and a strong job market.
Higher U.S. interest rates tend to boost the dollar and push bond yields up, putting pressure on gold prices by increasing the opportunity cost of holding non-yielding bullion.
Spot gold was down 0.3 percent at $1,188.41 at 0407 GMT. On Friday, gold touched its lowest since Aug. 17 at $1,180.34 an ounce.
U.S. gold futures were down 0.3 percent at $1,192.30 an ounce.
"Gold prices remain dependent on the dollar prices at this juncture. The U.S. economy has been rosy and better than expected. Efforts by the Trump administration to reduce the trade deficit from an economic point of view has been friendly for the greenback as well," OCBC analyst Barnabas Gan said.
Gold prices are likely to see lower volatility, with the Chinese markets closed for a week, for the Golden Week celebration, Gan said.
The dollar index was up 0.1 percent versus a basket of major currencies, and hovered close to a near three-week high hit in the previous session.
Gold has fallen about 13 percent from an April high, largely because of the stronger dollar, which has been boosted by a vibrant U.S. economy and fears of a global trade war. Investors have bought the greenback instead of gold as a safe investment.
Meanwhile, the United States and Canada reached a deal on Sunday to salvage NAFTA as a trilateral pact with Mexico, beating a midnight deadline with agreements to substantially boost American access to Canada's dairy market and protect Canada from possible U.S. auto tariffs, sources with direct knowledge of the talks said.
"Gold has been a seller's market for some time, but with the $1,190 level yielding, we're now firmly in the gold bear zone and as such with the dollar likely to strengthen on the back of widening interest rates differentials, selling activity could intensify with speculators likely to target the August low when the yellow metal hit $1,160 before rebounding," said Stephen Innes, APAC trading head at OANDA in Singapore.
Gold speculators raised their net short position by 2,923 lots to 77,313 lots, the largest in three weeks, in the week to Sept. 25, U.S. Commodity Futures Trading Commission (CFTC) data showed.
Among other precious metals, palladium fell 0.7 percent at $1,065.41, after touching a fresh eight-month high at $1,094.60 an ounce in the previous session.