NEW YORK Gold lost nearly 1 percent in thinner-than-usual trade on Monday, after Japan's intervention to weaken the yen sent the dollar soaring and commodities and other risk assets into a tailspin at the start of the week.
Currency-led selling pulled bullion down for a second straight day, extending a phase of consolidation from last week's short-covering surge that had lifted the price to its highest in more than a month, above $1,750 an ounce.
Despite the loss, gold posted a 6 percent gain for this month, recovering from a near-11 percent slide in September, when prices hit a record $1,920.30.
"The movements in the dollar ... you have to chalk that up as the number-one negative for commodities in general on the day," said Bill O'Neill, partner of LOGIC Advisors in Upper Saddle River, New Jersey.
"It's more of a risk-off day ... gold has become a very choppy, volatile trading affair, which makes it a little less attractive as a flight-to-safety vehicle," he said.
Bullion slipped as the greenback jumped to a three-month high against the yen after the government of Japan intervened to curb the yen's strength, making dollar-priced commodities more expensive for investors holding other currencies.
Helping gold recover some of the day's losses was a decision by the New York Federal Reserve to suspend conducting business with brokerage MF Global MF.N, which filed for bankruptcy protection after a tentative deal to find a buyer fell apart.
Spot gold was down 1.1 percent at $1,722.65 an ounce at 2:46 p.m. EDT.
In New York, the benchmark December COMEX contract shed $22 or about 1.3 percent, to settle at $1,725.20 an ounce, after dealing in a range from $1,705.50 to $1,746.50.
Futures volumes stood at around 118,000 lots in late New York trade, about 40 percent below the 30-day norm, according to Thomson Reuters preliminary data.
"MF Global was not a big surprise. Clearly it's not a bank, it's not on the scale of Lehman Brothers, but that is what helped the (gold) market to bounce off today's lows," VTB Capital analyst Andrey Kryuchenkov said.
Looking ahead, investors will turn their attention to a batch of economic data and central bank policy meetings, which may give the market a better sense of direction.
"This week, it's all about the economic data and central bank policy meetings," said Mitsubishi analyst Matthew Turner.
"There's no real sense of direction, except for the fact that it is trading more like a risk asset."
The U.S. Federal Reserve and the European Central Bank meet this week to discuss monetary policy, while the Group of 20 industrialized nations meet in the French city of Cannes to devise a plan to stabilize markets.
The correlation between gold and the European equity market rose to a multi-month high of nearly 50 percent, meaning gold was more likely to move in tandem with stocks, while gold's negative correlation to the dollar strengthened to -40 percent on Monday from around -30 percent last week.
Buyers in the physical market were on the sidelines, which led to gold bar premiums easing to a range between $1 and $1.50 an ounce over spot prices, from about $1.50 last week.
"We saw some light buying from Thailand," said a Singapore-based dealer. "If prices drop below $1,700, physical buyers are expected to return."
Investment interest in gold has been rekindled in recent weeks after euro zone leaders progressed toward an agreement to solve the region's debt crisis, albeit painstakingly, which pushed up the euro and as a result, helped send the gold price up 6 percent last week.
Last week, money managers raised their bullish bets in gold futures and options to the highest in four weeks, according to data from the U.S. Commodity Futures Trading Commission.
In exchange-traded fund flows, global holdings of gold ended last week with a 543,000-ounce inflow, the largest weekly increase since the week ending August 19.
So far in October, global gold ETF holdings have risen by more than 714,000 ounces to their highest in five weeks at 67.769 million ounces. This would be the first monthly rise in holdings since July.
In other precious metals, platinum was last down over 2 percent at $1,607.75, while palladium was down at $648.72 and silver shed more than 2 percent to $34.22 an ounce.