Bullion's losses accelerated after it ran into a bout of selling as it was unable to extend gains above $1,760 an ounce — a level the metal last week tried to clear several times, but failed each time.

The metal's losses came when the S&P 500 jumped nearly 2 percent and the dollar fell on increasing hopes that European leaders will find a solution to the region's debt crisis at a summit on Friday.

"We have seen gold moving along in tandem with equities. However, it is way too early to say that gold will lose its safe-haven status at some point," said David Meger, director of metals trading at Vision Financial Markets.

Spot gold fell 0.9 percent to $1,729.95 an ounce by 1:26 p.m. EST (1826 GMT), after rising nearly 4 percent in the previous week. U.S. gold for February delivery fell $17.50 to $1,734 an ounce.

Spot silver was down 0.9 percent to $32.28 an ounce.

Global markets rallied after the leaders of France and Germany agreed a master plan on Monday for imposing budget discipline across the euro zone, saying the EU treaty will need to be changed in the search for a sweeping solution to its debt crisis.