Silver also tumbled 4 percent, poised to notch its biggest two-day drop in a month, as safe-haven buying was absent for precious metals despite a downgrade of Greece's credit rating. Oil fell as much as $3 and U.S. equities also pared initial gains.

"Gold is suffering from liquidation of risk assets and it's going to face pressure of profit-taking, but the fundamental story that keeps people investing in gold is still in place," said Sean McGillivray, head of asset allocation for Great Pacific Wealth Management.

Spot gold was down 1 percent at $1,515.09 an ounce by 1:33 p.m. EDT, set for its biggest one-day drop in more than five weeks. It hit a session low of $1,510.62, its weakest since May 23.

Technical selling also weighed on prices after bullion fell below its 20-day moving average, a level it held for the past three weeks. Gold appears to find support after bouncing off its 50-day moving average at $1,507 an ounce.

Bullion extended losses from Friday when it came under liquidation pressure as the dollar rallied and Wall Street resumed its slide following weaker Chinese trade data.

The metal snapped a three-week winning streak last week, but it is up 3 percent in the past four weeks on a string of bleak U.S. economic data including a weak jobs report.

Spot silver fell 3.7 percent to $34.80 an ounce.

Crude oil and equities prices weakened further after Standard & Poor's cut Greece's credit ratings by three notches, saying the country is increasingly likely to restructure its debt in a way the ratings agency would consider a default.

The cost of insuring peripheral euro zone bonds against default hit record highs on Monday.

However, Credit Suisse said in a note that the lingering discussion about the fiscal situation across developed economies should additionally promote gold's role as a store of value.