Gold fell over 1 percent to under $1,200 an ounce on Monday, heading for its biggest annual loss in more than three decades at nearly 30 percent, as a willingness to take on more risk and the prospect of a global recovery tarnished bullion's shine.
U.S. equities soared to six-year highs as optimism over the global economy spurred a switch into riskier assets ahead of 2014.
"What's currently driving investors is the idea that commodities are out of fashion and equities are in demand," Quantitative Commodity Research owner Peter Fertig said.
"And, with low inflation pressures, there is still some downside risk for gold as long as the stock market remain relatively robust."
Gold is usually seen as an hedge against inflation, which is not a concern for investors for the time being.
Spot gold fell to a session low of $1,194.99 an ounce in late afternoon trading in New York and was down 1.4 percent at $1,195.96.40 at 4:36 p.m. EDT (2136 GMT).
U.S. gold futures for February delivery slipped $10.2 to settle at $1,203.8 an ounce.
"For the time being, price moves will be exaggerated by the lack of liquidity ... but in the absence of any fresh macro news, I don't think we are going to break below $1,190 or above $1,225," MKS SA head of trading Afshin Nabavi said.
Gold's performance in 2013 has put an end to 12 straight years of growth, with prices hit by the U.S. central bank's decision to rein in its monetary stimulus, which will raise the opportunity cost of holding the non-yielding asset.
Expectations the U.S. economy will improve and the rest of the world's growth will stabilise in 2014, have further undermined the case for holding bullion, as investors look to put their money in riskier assets such as equities.
In wider markets, the dollar fell 0.4 percent against a basket of currencies as the 10-year U.S. notes yield steadied below an earlier two-year high.
Heavy outflows from gold-exchange traded funds also reflected investors' diminishing interest. Holdings on SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell three tonnes on Friday to their lowest since January 2009 at 801.2 tonnes.
The physical market saw a few deals among trading houses and jewellers, keeping premiums for gold bars steady at $2 an ounce to the spot London prices in Hong Kong, a centre for bullion trading in East Asia.
Premiums in Singapore were steady at $1.50 an ounce to the spot London prices, but there was not much activity.
China's net gold imports from Hong Kong fell 42 percent to 76.393 tonnes in November from 131.19 tonnes in October, reflecting a drop in demand after strong purchases in previous months.
Silver fell 2.4 percent to $19.56 an ounce. Silver is down 35 percent this year in its worst annual performance since at least 1982.
Spot platinum was down 1.2 percent at $1,355.50 an ounce, snapping four consecutive sessions of gains. Spot palladium was down 0.25 percent to $705.96 an ounce.