Spot gold fell to $465.20/466.00 an ounce by 1644 GMT, down some 1.6 percent from New York's late quote on Friday of $473.10/473.80.
Bullion has now fallen by nearly $15 since surging to its highest in nearly 18 years earlier this month at $480.25.
"It's been threatening to do this for a while. The dollar has sort of reasserted itself after the GDP figures on Friday and it looks like there'll definitely be another rate hike tomorrow," said Simon Weeks, director precious metals at ScotiaMocatta, said.
He was referring to this week's meeting of the Federal Open Market Committee, which is widely expected to raise its key rate to 4 percent on Tuesday from 3.75 percent. Investors would focus on the accompanying statement for clues about further increases.
The dollar surged to a fresh 25-month high against the yen and posted sharp gains versus the euro as a batch of robust US economic data signalled a steady diet of interest rate increases.
Traders and analysts had been cautiously eyeing the hefty net long speculative position that funds had built up over the past few weeks on the New York gold futures market.
John Reade, analyst with UBS Investment Bank, said in his daily report that the latest reports from US exchange authorities showed the speculative positioning in all four precious metals was extended.
"Profit-taking/long liquidation remains a threat to all four metals. We suspect that gold will lead the way although palladium and silver are also vulnerable to sharp moves lower," he said.
Comments after the Fed meeting could affect the dollar and so the precious metals. Gold tends to weaken when the dollar rises as the metal becomes costlier for those holding other currencies.
"So far people have been prepared to support positions on the way down," Weeks said. "But it just doesn't feel like it has legs at the moment."
Traders noted the latest potential merger in the gold industry. Canada's Barrick Gold Corp bid $9.2 billion for rival Placer Dome Inc on Monday, a deal that would create one of the world's biggest gold miners with annual output of 8.3 or 8.4 billion ounces.
Platinum was little changed at $936/940 an ounce from $935/939 last quoted in New York on Friday. The metal hit a 25-1/2-year high of $947 last week.
The metal might extend gains after consolidating between $925 and $945 and climb to $1,000 in the medium term, traders said.
Silver fell to $7.62/7.65 an ounce from $7.75/7.78, while palladium was quoted at $222/226 versus $223/227.