A surge on US stock markets and the dollar coupled with renewed weakness in crude oil saw the gold price begin to lose sight of the psychologically important $1,200 an ounce level on Monday.
Gold for delivery in June – the most active futures contract – fell $18.32 or 1.5% hitting $1,182.38 in heavy midday trade in New York giving up all of last week's gains.
Last week nervous investors piled into gold after Saudi-Arabia launched airstrikes in Yemen against Iranian-backed militias that had taken over large swathes of the country with the price climbing to a three-week high above $1,220 an ounce.
The rally saw gold recover from its 2015 nadir of $1,148.20 an ounce hit the week before, but the change in sentiment is proving short lived as safe-haven buyers exit the market.
On Monday attention shifted to the looming announcement of a framework agreement between western powers and Iran about its nuclear program, which could reshape the crude market in the Middle-East if and when sanctions are lifted against the world's sixth largest oil producer, just behind Canada. Oil lost more than 1% on Monday, to back below $50 a barrel.
Monday's weakness also wiped out the metal's gains for the year and gold is now trading down more than $120 below its the 2015 high above $1,300 reached in January.
Gold was also put under pressure by a stronger dollar which gained to within shouting distance of fresh 12-year highs. The dollar was aided by comments from US Federal Reserve Chair Jane Yellen on Friday that a rise in the benchmark rate "may well be warranted later this year."
As it is not income producing gold is negative correlated with interest rates and bond yields. Gold and the dollar also usually move in opposite directions. The US Dollar Index is up 21.6% compared to this time last year and the past year has been the greenback's strongest run on a rolling 12-month period since 1973.
A new report by the World Gold Council that examines the complex relationship between the gold price and the world's reserve currency showed gold prices rise twice as much during weak dollar periods than they fall when the dollar strengthens which helps to explain some of the recent volatility in the price.