Gold prices turned negative as the US dollar strengthened following news that China would retaliate against a new round of tariffs on its goods.
US Treasuries also rose, helping boost the dollar but pressuring gold.
China said that it had no choice but to retaliate against new US trade tariffs, raising the risk that US President Donald Trump could soon impose duties on virtually all Chinese goods that America buys.
The US dollar index strengthened against a basket of major currencies.
A stronger dollar generally weighs on the price of dollar-denominated gold, which has been losing out on safe-haven flows to the greenback during the months-long US-China trade conflict.
Spot gold dropped 0.23 per cent at $US1,197.75 per ounce in choppy trade.
US gold futures for December delivery fell $US3.30, or 0.3 per cent, at $US1,202.50.
Gold prices have declined more than 12 per cent since April, hurt by the intensifying trade dispute between the United States and China and as rising US interest rates diminished demand for non-interest-bearing bullion.
‘I think there’s a secondary factor where higher rates and real rates are helping lift the dollar and that’s putting pressure on gold,’ said Rob Haworth, senior investment strategist for US Bank Wealth Management.
Higher yields tend to lift the dollar and pressure gold, which costs to store and insure but does not pay interest.
Investors are eyeing a meeting by the US Federal Reserve next week at which interest rates are widely expected to be raised, said ActivTrades chief analyst Carlo Alberto De Casa.
‘Any comments about the 2019 monetary policy could be a new significant driver for the precious metal,’ he said.
Gold prices were ‘hovering below massive resistance between $US1,205-$US1,215 range’, said FOREX.com analyst Fawad Razaqzada, pointing out that gold was still in a bearish trend.
Investors trimmed their net short positions in Comex gold and silver in the week to September 11, US data showed on Friday.
‘One of the big problems that gold is facing is that it is trying to battle a mountain of pessimism,’ ETF Securities analyst Nitesh Shah said.
‘The speculative positioning in gold is down to its lowest levels since 2001 … gold is not behaving like the haven that it is supposed to be.’
Spot silver lost 0.1 per cent at $14.14 an ounce.
Platinum rose 1.9 per cent at $US811.30, while palladium gained 2.7 per cent at $US1,010.72, reaching its highest since mid-June at $US1,012.50 an ounce.