Gold fell 1 per cent Monday on technical selling and liquidation by investors of positions added last week to cushion currency volatility from the Greek debt crisis.
Traders said that the market's failure to hold an important psychological chart level just above $1,130 (U.S.) an ounce disappointed investors, prompting further selling of the precious metal.
"There is profit-taking after the sharp increase over the past few weeks in gold, and a bit of unwinding of the excessive fear trade linked to Greece and Europe," said Zachary Oxman, managing director at California-based TrendMax Futures.
Gold ended about $20 higher last week as questions about the ability of Greece to repay its debt spurred buying of the metal as a hedge against economic uncertainties.
U.S. gold futures for April delivery on the Comex division of the New York Mercantile Exchange settled down $11.20 at $1,124 an ounce.
Spot gold was at $1,122.45 an ounce at 3:01 p.m. ET, down from $1,133.80 in New York late Friday.
"It ran out of steam on currencies, and in a thin market with bullish comments about growth around, gold is feeling a bit heavy," said Simon Weeks, head of precious metals at the Bank of Nova Scotia.
The precious metal rose earlier in the session after last week's better than expected U.S. jobs data boosted hopes for an economic recovery and increased investors' willingness to take on risk.
This benefited higher-yielding currencies, such as the euro, at the expense of the dollar. Weakness in the U.S. unit boosts gold's appeal as an alternative asset and makes dollar priced commodities cheaper for holders of other currencies.
Concern over the fiscal health of debt-laden Greece and other peripheral euro zone economies weighed heavily on the euro last week. However, those fears are now receding.
In addition, selling pressure increased after Commodity Futures Trading Commission data released on Friday showed an increase in net long non-commercial, or short-term trading, position in gold futures, analysts said.
Underlying investment demand should provide support, as holdings of the world's largest gold-backed exchange-traded fund, the SPDR Gold Trust, rising 0.609 tonnes on Friday.
From the supply side, Newmont Mining Corp., the world's No. 2 gold producer, might consider expanding operations into countries it previously believed were too politically risky, its chief executive officer told Reuters.
Richard O'Brien also said at the Reuters Mining and Steel Summit that gold should trade between $1,000 and $1,250 in 2010, and should reach $1,500 in the next several years due to stimulus-led inflation.
Palladium rose as high as $477 an ounce, close to the two-year high of $480 an ounce it hit late last week, but retreated along with gold to $469 against Friday's $471.
Robust auto sales figures in the major gasoline car markets China and the United States lifted prices last week. While diesel auto catalysts use a heavier loading of platinum than palladium, petrol catalysts are more palladium-intensive.
Among other precious metals, platinum was at $1,594 an ounce, up against $1,569.50. Spot silver fell to $17.18 an ounce from $17.32.