Gold dropped more than 2 percent on Monday, hit by margin selling related to an equities sell-off that stemmed from mounting fears about government debt in Europe and the United States.
Silver tumbled 4 percent.
Investors liquidated some positions in gold to cover heavy losses in the equity markets, after Spain's government became the fifth in the 17-nation Eurozone to be toppled by the region's sovereign debt crisis this year.
Bullion, a traditional safe haven that has recently tracked riskier assets, tumbled as Washington's effort to cut its debt is set to end with a whimper as negotiators plan to announce they have failed to reach a deal. Wall Street stocks dropped almost 3 percent.
Every time there is a sudden sell-off in equity markets, people have to raise money where they can, and gold is the most liquid asset, said Adrian Day, president of Adrian Day Asset Management, which manages $160 million in assets.
Spot gold was down 2 percent at $1,691.49 an ounce by 11:22 a.m. EST. Last week, gold fell around 3 percent, its largest weekly decline since September.
Technical selling accelerated after bullion fell below a key technical support at its 100-day moving average. Gold has now dropped sharply in three of the past four sessions.
U.S. gold for December delivery fell $32.30 to $1,692.80 an ounce. Trading volume was set sharply to exceed its 30-day norm, preliminary Reuters data showed.
Weighing heavily on global markets was news that the Republican and Democratic leaders of a 12-member congressional super committee are set to declare defeat after three months of talks failed to bridge deep divides on taxes and spending.
U.S. stock markets dropped as the failure will cement notions of a dysfunctional Washington. Investors are already disenchanted with the brinkmanship that brought the country to the edge of a first debt default in August.
Spot silver dropped 4.1 percent to $31.06 an ounce. Demand worries surfaced as data showed China's October silver imports dropped 26 percent on the year, and the total inflow in the first 10 months of the year slumped 28 percent.
Platinum fell 2.6 percent to $1,546.99 and palladium slid 2.7 percent to $584.97.