Gold edged lower on Monday, on course for its largest annual loss in 32 years, as thin pre-holiday trade and signs of an improving U.S. economy kept investors fretting over the impact of the Federal Reserve's stimulus tapering.
The metal posted its biggest weekly loss in a month after the Fed's decision last week to start scaling back its bond-buying stimulus, which was followed by upbeat GDP data.
"Investors remain negative towards gold for now as there is no more uncertainty around the Fed taper," MKS SA vice president Bernard Sin said.
"The Fed QE tightening...will lead to a gradual rise in interest rates, which will eventually make the cost of carrying gold a lot higher... and that suggests further liquidation."
Spot gold fell 0.3 percent to $1,198.50 an ounce by 1456 GMT, while U.S. gold futures for February delivery was down $5.90 at $1,197.70..
"I would argue that there is support at $1,190 ... but there may be more downside as it doesn't take much to move the market in thin holiday trading," VTB Capital analyst Andrey Kryuchenkov said.
Gold hit its lowest since June on Friday at $1,185.10 an ounce, closing in on a 3-1/2-year low touched earlier that month, after the Federal Reserve's first step away from ultra-loose monetary policy further undermined the investor case for holding bullion.
The Fed said last week that the U.S. economy was strong enough for its bond-buying scheme to be scaled back, winding down an era of easy money that saw gold rally to an all-time high of $1,920.30 an ounce in 2011.
Gold was the major financial benchmark hardest hit by the U.S. central bank's taper, which will raise the opportunity cost of holding non-yielding gold.
The metal has fallen nearly 30 percent this year, putting an end to 12 straight years of growth and reflecting expectations that economic recovery would bring an end to quantitative easing.
Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 5.40 tonnes to 814.12 tonnes on Friday - the first inflow since Nov. 5.
The fund, which accounts for around 40 percent of total ETF holdings, saw a record outflow of more than 450 tonnes in 2013 to the lowest level in nearly five years.
Outflows from the top eight gold ETFs have totalled about 720 tonnes as investors channelled more money to riskier assets such as equities.
Hedge fund managers cut their bullish bets on gold only modestly in the week to Dec. 17, data released on Friday showed.
Physical demand picked up in Asia as prices fell towards $1,200 last week but not to the same level seen during earlier price drops this year.
Volumes traded on the Shanghai Gold Exchange for the 99.99 percent purity gold contract were lower than Thursday's two-month peak. Premiums edged up $2 to $18 an ounce from Friday.
Silver rose 0.4 percent to $19.42 an ounce. Spot platinum was down 0.3 percent at $1,324.00 an ounce, while spot palladium fell 0.2 percent to $694.33 an ounce. (Additional reporting by A. Ananthalakshmi in Singapore; editing by William Hardy)