Gold fell more than 1 percent on Monday as lackluster physical buying prompted traders to cash in three days' gains, while early gains in equities dented bullion's safe-haven appeal. Gains from the stock market diverted investment interest from gold, as the Dow and S&P 500 rose to record highs earlier in the session before equities investors took profits.

Bullion came under pressure from global economic optimism on signs of ambitious economic reform in China and the prospect of extended stimulus from the U.S. Federal Reserve.

Also weighing down on investor sentiment was continued decline in the holdings of SPDR Gold Shares, the world's largest gold-backed exchange-traded fund.

"Until such time as financial investors - be they short- or longer-term-oriented - return to the market, gold and silver will find it hard to make any significant gains," said Eugen Weinberg, head of commodities research at Commerzbank.

Spot gold was down 1.3 percent to $1,272.54 an ounce by 3:39 p.m. EST (2039 GMT). The metal had gained almost 2 percent in the last three days.

U.S. gold futures for December delivery settled down $15.10 an ounce to $1,272.30, with trading volume about 40 percent below its 250-day average, preliminary Reuters data showed.

GOLD BUYING WILTS

Gold dominated a stampede out of commodities in the week to Nov. 12 as hedge funds and other speculative investors sold off more than $4 billion in U.S. futures and options contracts, data showed on Friday.

Gold demand from major consumers in Asia remained muted on Monday. Chinese premiums have fallen to about $5.50 an ounce from about $7.50 on Friday.

Prices are also suffering from a dearth of demand from India, which is set to be overtaken by China as the world's No. 1 gold buyer this year after Indian authorities increased import duties for the metal.

Among other precious metals, silver was down 1.9 percent at $20.37 an ounce, while platinum slipped 2.1 percent to $1,406.99 an ounce and palladium fell 2.1 percent to $714.83 an ounce.