The precious metal slipped towards $1,580 an ounce, surrendering the gains it made on Friday when it put in its best one-day performance in more than a week.
Spot gold was down 0.6 percent at $1,580.16 an ounce at 1215 GMT, while U.S. gold futures for August delivery were down $11.90 an ounce at $1,580.10.
Prices have fallen nearly 1 percent in July, failing to build on June's modest gains as the Fed dampened speculation it was set to announce a fresh round of quantitative easing. Fed chair Ben Bernanke's testimony on Tuesday and Wednesday will be closely watched for signs that its stance on QE is softening.
Bernanke will present his semi-annual monetary policy report to Congress against a background of lackluster growth at home and a festering sovereign debt crisis in Europe that is increasingly preoccupying U.S. policymakers.
A voting member of the Federal Reserve's policy-setting body, Dennis Lockhart, said on Friday he had edged closer to supporting another round of QE if the sluggish economy couldn't improve. However another regional bank president reiterated that he did not see any need for additional Fed easing.
Further monetary easing would maintain pressure on long-term interest rates, keeping the opportunity cost of holding gold at rock bottom, as well as weighing on the dollar.
Right now, after the latest (Fed) meeting at the end of June and the disappointment there, I'm not pricing in any QE3 factor before the U.S. elections, LGT Capital Management analyst Bayram Dincer said.
The options market is skewed to the downside with a retesting of the $1,526-$1,500 levels, he added. Gold still has good value under certain conditions, but there is this correlation to the equities market, and some profit taking there can spill over into weaker gold prices.
We are lacking driving forces for the time being, and gold is stagnating.
European stocks came under pressure on Monday as investors took to the sidelines, reluctant to push the market higher as the early stages of a second-quarter earnings season brought signs the euro zone crisis is hurting profits. .EU
Safe-haven German Bund futures rose, remaining the investment of choice for those seeking shelter as yields rose on bonds issued by Spain and Italy, which are struggling to retain confidence that they can keep financing their debts while reining in deficits.
While the euro zone debt crisis tended to boost gold along with Bunds, the dollar and U.S. Treasuries last year, it has since re-established its positive correlation with other commodities and its inverse link to the dollar.
The correlation between the dollar and gold stood at -0.68 in early trade, steady from Friday and the strongest inverse correlation in nearly three months.
The euro eased against the dollar on Monday on concerns about euro zone debt and high peripheral bond yields.
Holdings of gold-backed exchange-traded funds stood at 70.5 million ounces, down about half a percent from a peak of 70.89 million ounces in March.
Hedge funds and money managers cut net long positions in U.S. gold futures and options by nearly 20 percent in the week to July 10, erasing the previous week's gains.
Macro developments and policy expectations are likely to continue driving the gold market for the remainder of 2012, and so it's more of the same for gold as we have seen in recent months, UBS said in a note.
Clear signs of deterioration in the global economy are needed for the market's expectations of policy response to accelerate, which in turn would lift gold prices.
Among other precious metals, silver was down 1.3 percent at $26.96 an ounce. Holdings of the largest silver-backed ETF, the iShares Silver Trust, fell by 33.2 tonnes on Friday, their biggest one-day drop since the start of July.
Spot platinum was down 0.8 percent at $1,410.25 an ounce and spot palladium was down 0.6 percent at $575.58 an ounce.