Gold dropped by half a percentage point on Monday, retreating from two-month highs under pressure from a strengthening dollar and a slight easing of tensions between the United States and North Korea.
Though North Korea`s Liberation Day celebration on Tuesday could raise the temperature again, markets were relieved that the weekend passed without more inflammatory rhetoric.
Elsewhere, the dollar rose from last week`s four-month lows against the yen and traded up against a currency basket, making dollar-priced gold costlier for non-U.S. investors.
"A lot of the negative news is priced into the dollar. That, combined with no real escalation in North Korea, should lead to lower gold prices, though it doesn`t mean we expect a very negative trend. We`ll stay within the $1,200 to $1,300 range for the year," said ABN Amro strategist Georgette Boele.
Spot gold fell 0.6 percent to $1,280.45 an ounce by 1004 GMT, having reached its highest since June 7 at $1,291.86 in the previous session.
U.S. gold futures for December delivery fell 0.6 percent to $1,286.90.
Consumer prices in the United States rose less than expected in July, data showed on Friday, suggesting benign inflation that could persuade a cautious Federal Reserve to delay raising U.S. interest rates until December.
"As a result (of the weak inflation data), rate hike expectations according to the Fed Fund Futures have dropped to their lowest level since November, which should benefit gold," Commerzbank said in a note.
Gold is highly sensitive to rising interest rates because they increase the opportunity cost of holding non-yielding bullion.
Hedge funds and money managers boosted their net long, or buy, position in COMEX gold for the fourth straight week to a near two-month high in the week to Aug. 8, data showed on Friday.
Spot gold faces strong resistance at $1,291 an ounce and could hover below this level or retrace to support at $1,278, said Reuters technical analyst Wang Tao.
Among other precious metals, silver fell 0.5 percent to $16.98 per ounce, having climbed last week to its highest since mid-June.
Platinum fell 1.2 percent to $968.50 after hitting a five-month high on Friday, while palladium rose 0.1 percent to $893.40.