Gold fell to its lowest in a week on Monday, as investors unloaded safe-haven assets and sought equities after Cyprus struck a last-minute bailout deal with lenders.
Some investors had picked up gold as the crisis in Cyprus had re-ignited euro zone debt fears, sending bullion to a one-month high of $1,616.36 an ounce last week.
The deal with international lenders averted a collapse of the island's banking system, leading the precious metal down, although physical buyers emerged at the lower levels in Asia and limited losses.
Gold shed 0.3 percent to $1,602.76 an ounce by 1119 GMT after earlier hitting $1,602.59, its weakest since March 19. Prices were still on course for their first monthly gain however - standing around 1.5 percent higher on the previous month so far - after posting declines every month since October.
U.S. gold futures for April delivery were at $1,604.30, down 0.1 percent.
"Sentiment remains still negative as there is this assessment that improving economic activity and higher equities would make gold less attractive in coming months," Peter Fertig, consultant at Quantative Commodity Reaserch, said.
"The Cyprus situation should have triggered stronger buying interest for gold as it happened in 2011 but investor behaviour has been more cautious this time as there was some anticipation that a deal would be reached and contagion risk was limited."
Gold hit a record high of around $1,920 in September 2011, when a worsening debt crisis in Europe sparked a buying rush. Gold's 12-year bull run has benefited in the last three years from the euro zone crisis.
In wider markets, European shares rebounded and the euro firmed after the Cyprus deal, which involves winding down Popular Bank of Cyprus, also known as Laiki, and shifting deposits below 100,000 euros to the Bank of Cyprus to create a "good bank". .
The agreement between Cyprus and the lenders came hours before a deadline to avert a collapse of the banking system in negotiations between President Nicos Anastasiades and heads of the European Union, the European Central Bank and the International Monetary Fund.
The physical gold market saw buying interest after prices dipped, keeping premiums for bullion bars steady in Hong Kong at $1.20 to $1.50 an ounce above spot prices and at $1.20 in Singapore.
But gold prices faced pressure from Comex gold options expiry for April on Monday, traders said.
And there was also some pressure from the continuous outflow from gold-backed exchange-traded funds. Holdings of SPDR Gold Trust, the world's largest gold ETF, fell 0.9 tonnes from the previous session to 1,221.26 tonnes on Thursday, the lowest since July 2011.
However, hedge funds and money managers raised their bullish bets in gold by 63 percent in the week ending March 19, Commodity Futures Trading Commission data showed on Friday.
Traders and analysts were eyeing key resistance at $1,620 an ounce, a price unseen since the end of February, and support at $1,600.
"A move above the $1,620/25 area in gold is needed to signal further upside toward $1,660 and prevent slippage through $1,600," Barclays said in a note.
In other precious metals, spot silver fell 0.1 percent to $28.75. Platinum was down 0.2 percent at $1,576.74, while palladium was unchanged at $758.