Gold fell on Monday, extending its losses from the previous session to mark the largest two-day drop since August, as buyers remained wary of the precious metal's prospects after positive U.S. jobs data last week.
The dollar rebounded from a two-week low against the euro as investors focused on the likelihood of better economic recovery in the United States than in Europe and Asia in the near-term, narrowing the scope for U.S. stimulus action that has lately boosted gold.
"If we get slightly better U.S. data going forward, which gives more support for the U.S. economic recovery, we get a stronger dollar," Citigroup analyst David Wilson said.
"Obviously, Europe is still continuing to struggle, and that would suggest that the rally is done for the time being, although I'm not saying gold won't see more upside further out."
U.S. payrolls data for September, released on Friday, showed employers added 114,000 workers last month, bringing the jobless rate to 7.8 percent -- the lowest since President Obama took office.
To help jobs recovery, the U.S. Federal Reserve pledged in September to buy $40 billion a month in mortgage-backed securities to lower borrowing rates and keep credit flowing through the economy. The Fed's pledge is seen good for only as long as job creation remains sluggish.
In Monday's trade, the spot price of gold was down about 0.4 percent, hovering around $1,780 an ounce by 1800 GMT and extending Friday's 0.5 percent drop.
The near 1-percent decline since Thursday's settlement is the sharpest decline for spot gold over a two-day period since August, Thomson Reuters data showed.
"It's quite possible that we do see further follow-through selling because we had a sharp move up in the last quarter," said Mark O'Byrne, executive director at bullion dealer GoldCore.
U.S. gold futures' most-active contract, December, settled down 0.3 percent, or $5.10, at $1,775.70 an ounce.
Gold has risen by more than 13 percent in value so far this year, putting it on track for a 12th year of gains.
Market bulls are optimistic that bullion will trade above $1,800 an ounce in coming months, helped by struggling global growth, if not continued U.S. economic weakness.
"There is strong resistance at $1,800, so I wouldn't be surprised if gold was to come back to $1,750 or $1,700, but in the long term, there is a secular bull market," GoldCore's O'Byrne said.
The World Bank cut its economic growth forecasts for the East Asia and Pacific region and said there was a risk the slowdown in China could worsen and last longer than many analysts have forecast.
ETP HOLDINGS AT RECORD
Momentum in gold buying may have slowed, but longer-term demand -- reflected by continued inflow of the precious metal into exchange-traded products -- remains healthy.
Holdings of gold in ETPs touched a new record of 74.725 million ounces by Friday's close. So far in 2012, holdings have risen by a net 5.7 million ounces, and 4.5 million of this total have flowed in over the past two months alone.
Anticipation of gold-friendly monetary policy by the world's major central banks, along with a seasonal pick-up in buying, especially in top consumer India, have buoyed bullion prices and enticed more investment.
The world's largest ETPs now hold more gold than the combined reported reserves of Switzerland and China and would rank sixth below France in a list of top official holders of bullion.
In other precious metals, silver fell by 1.4 percent to $33.98 an ounce, bringing the loss in value over the last two days to more than 3 percent, and wiping out gains over the last two weeks that took the market to seven-month highs.
Platinum was down 0.9 percent at $1,689 an ounce, while palladium fell 0.5 percent to $653.47 an ounce.
Production of platinum was still paralysed across much of South Africa -- home to the world's largest platinum reserves -- as worker strikes idled some of the world's largest platinum mines, including those of Anglo American Platinum .
Xstrata's Eland platinum mine became the latest site to suffer disruption after workers staged an illegal strike, leaving it operating on a skeleton staff, the company said on Monday.
Thousands of platinum industry workers in South Africa have downed tools to demand higher wages, and since mid-August, nearly 50 people have died in clashes with police and between rival trade unions.