Gold settled lower on Monday, after hitting two-month highs earlier in the day, as bond yields rose, signalling that the U.S. Federal Reserve could be moving closer to reducing monetary stimulus next month.
Spot gold fell 0.8 percent to $1,365 an ounce, having earlier hit a two-month peak of $1,384.10. U.S. gold futures for December delivery settled $5.30 lower at $1,365.70.
Gold has rallied in recent weeks due to uncertainty about Federal Reserve policy, technical buying triggered by milestone lows hit in June and most recently fresh inflows into bullion-backed funds.
But analysts suggested the rally was a correction in an overall downtrend. Gold has lost nearly a fifth of its value so far this year, leaving a record high of $1,920.30 in September 2011 far behind.
"There's a mystery at the moment, because the bond market clearly believes that the Fed tapering is just about to start," said Jesper Dannesboe, senior commodity strategist at Societe Generale.
German and U.S. government bond yields rose to multi-month highs on Monday.
Providing some support to gold, the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, posted a 0.4 percent increase in its holdings last week to 915.32 tons, its first net gain in months.