Gold prices dropped 1% on Monday, slipping from a 14-month peak, after U.S. President Donald Trump's decision not to impose trade tariffs on Mexico spurred risk sentiment and lifted the dollar from recent lows.
Spot gold was down 0.8% at $1,329.10 per ounce, having fallen as much as 1.2% earlier in the session. The metal had hit its highest since April last year at $1,348.08 an ounce in the previous session.
U.S. gold futures settled $16.80 lower $1,329.30.
"Global equities are rallying across the board and we are seeing liquidation on safe haven demand," said Phillip Streible, senior commodities strategist at RJO Futures. "Gold futures are backing off and the dollar index is rallying and prices are burdened with the Mexico tariffs."
The United States and Mexico struck a deal on Friday, averting a potential tariff war, after Mexico agreed to cooperate in curbing the flow of illegal Central American migrants.
Markets worldwide were quick to cheer the deal, with MSCI's index of stocks across the world up more than 1%, and Wall Street set to begin the week well. The dollar index also gained, after dropping to a two and half month low in the previous session.
"Trader and investor attitudes are more upbeat to start the trading week after the U.S. and Mexico late Friday reached a deal," said Jim Wyckoff, senior analyst at Kitco in a note.
"However, progress on the U.S.-China trade war front remains elusive amid no signs the world's two largest economies are coming closer to any agreement on trade matters"
Gold prices were still supported above key technical levels as investors see high probability that the U.S. central bank will cut interest rates this year. Lower interest rates reduce the opportunity cost of holding non-yielding bullion.
Fed fund futures now price in more than two 25-basis point rate cuts by year-end, with one almost fully priced in by July. Weak U.S. economic data and the Sino-U.S. trade dispute are clouding the global economic outlook.
"Gold futures will continue to rise, so long as the yield curve continues to remain inverted. I'd like to see gold remain above $1,320, with $1,310 being a critical support level," Streible added.
Reflecting increased investor interest in gold, speculators raised their net long position in COMEX gold in the week ended June 4, data showed on Friday.
Palladium erased the day's losses to jump 2.5% to $1,391.75 per ounce, taking cues from gains in the automotive sector, whose operations in Mexico and the United States are strongly intertwined.
Platinum reversed course as well, inching 0.1% higher to $807.59 per ounce, while silver shed 1.6% to $14.76 per ounce.