Gold prices dropped sharply in holiday-thinned trade Monday, falling as much as 2.7 percent after Wall Street stocks opened higher, deflecting interest from the safe-haven metal.
U.S. equities opened up more than 1 percent, supported by gains in European and Asian stocks, which rallied partly on a possible merger between two big banks in Greece, and on hopes that the Federal Reserve may carry out more monetary easing.
Spot gold was down 2.2 percent at $1,787.90 an ounce at 1354 GMT. Prices were highly volatile last week, sliding more than $200 from their early peak at a record $1,911.46 an ounce, dropping towards $1,700.
With a possibility of a stimulus package from the Fed in the weeks ahead, risk appetite seems to have returned to the markets and safe havens are being dumped, said Pradeep Unni, senior analyst at Richcomm Global Services.
With the failure to break key resistance at $1,838 selling pressure seems to be mounting, and there is a possibility of a slide to $1,750 and below in the coming sessions.
Last week's heavy selling saw speculators cut long positions in U.S. gold futures and options for a third straight week even as bullion prices shot up, data from the U.S. Commodity Futures Trading Commission showed.
Holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Trust , recorded an outflow of nearly 60 tonnes last week, its largest weekly outflow since the fund was launched in November 2004.
Prices were volatile ahead of a key speech by Fed chairman Ben Bernanke in Jackson Hole, Wyoming, on Friday, amid speculation that a further round of quantitative easing would be announced.
The sharp sell-off last week was a reminder that markets never move in a straight line, and it will probably slow down, but not stop, further progress to the upside, said Saxo Bank senior manager Ole Hansen.
U.S. gold futures GCv1 for August delivery were down $6.70 an ounce at $1,790.60. Prices were largely rangebound in European trading hours, with London closed for the August Bank Holiday.
Speculation that more easing may yet be unveiled next month in the face of an uncertain growth outlook weighed on the dollar on Monday and helped lift European stocks.
Bund futures fell on signs that the U.S. Federal Reserve would consider a fresh batch of economic stimulus at September's Fed policy meeting.
An extra day of deliberations scheduled for the September FOMC meeting kept hope of another QE3 on the table, said ANZ Bank in a note on Monday.
Further quantitative easing -- which basically translates as printing money -- would likely further undermine the dollar, boosting gold's appeal as a safe store of value. Much of the metal's rally to record highs came on the back of last year's round of easing.
A survey released on Sunday showed a drive to benefit from record bullion prices lifted Australian gold production by 10 percent, or 24 tonnes, to 270 tonnes in the 2010/11 financial year, maintaining Australia's No. 2 ranking as a gold producer behind China.
Among other commodities, Brent crude futures rose more than $1 on Monday, boosted by stronger equities, relief that Hurricane Irene did less damage than feared in the New York area and a weaker dollar.
Silver was down 2 percent at $40.65 an ounce, tracking weakness in gold prices. Spot platinum was down 0.5 percent at $1,817.99 an ounce, while spot palladium was flat percent at $751.47 an ounce.
The Business Day newspaper in South Africa reported on Monday that members of the republic's parliament are seeking amendments to strengthen the country's mining charter, aimed at ensuring the industry is at least 26 percent black-owned by 2014.
South Africa is the world's biggest producer of platinum, accounting for nearly four out of five ounces of world mine production. It is also a m22or producer of gold and palladium.