Gold fell near a six-month low on Tuesday, holding just above $1,600 an ounce, as an equities rally and signs of an improving global economic outlook dented bullion's safe-haven appeal.
The metal fell 0.5 percent as investors were drawn to riskier assets as the S&P 500 climbed to a five-year high with a string of recent merger activity suggesting stocks could offer even more value. Technical weakness also sent precious metals lower across the board. Silver fell around 2 percent to a six-month low.
Fading currency risks about a chaotic break-up of the euro zone and recent data showing continued economic recovery around the world have lessened the need for bullion among investors, analysts said.
"You are seeing gold become an asset that investors no longer need to jump in on because the fact that these currencies are not going any time soon. So, the currency hedge is reduced markedly," said Adam Sarhan, chief executive of Sarhan Capital.
Spot gold was down more than 0.30 percent below $1,605 an ounce, having fallen to a six-month low of $1,598.04 on Friday after breaching key support levels.
U.S. gold futures for April delivery settled down by $5.30, ending the session at $1,604.20.
Volume was higher than usual as it included Monday's electronic trading as U.S. markets were shut for the President's Day holiday.
Last week's 3.5 percent drop - the largest weekly fall since May 2012 - made gold vulnerable to further losses in the short term, traders said. U.S. regulatory selling showing bullion selling by Notable institutional investors, including George Soros, Julian Robertson and Allianz's PIMCO in the fourth quarter of 2012 also weighed down on sentiment.
Investors will scour the minutes from the latest policy meeting of the U.S. Federal Reserve due on Wednesday for hints on the central bank's attitude to monetary stimulus, which has been a key driver behind gold's rally over the past two years.
Silver , which tends to be more volatile than gold, fell more than 1.5 percent to near $29.40 an ounce.