Gold dropped to a 2-1/2-week low on Monday, extending losses from the previous session, as stop-loss selling more than offset support from China inflation data suggesting there was more room to ease monetary policy.
Gold staged its biggest daily loss in more than two months on Friday, after data showed U.S. consumer sentiment rose to a five-year high, adding to concern that the Federal Reserve's latest round of quantitative easing (QE3), aimed to improve job market and supporting growth, may be trimmed.
China's annual consumer price inflation ticked down to 1.9 percent in September from August's 2.0 percent, leaving plenty of room for further policy easing to shore up growth, which would help support gold's role as a hedge.
But momentum in gold remained depressed after the data release, as the slide from Friday's intra-day high above $1,770 triggered stop-selling that was still pushing prices lower, traders said.
"We traded through lots of stops this morning," said a Singapore-based trader, "The China inflation story is outweighed by such selling."
Spot gold fell to a 2-1/2-week low of $1,741.24 an ounce before paring some losses to $1,743.39 by 0323 GMT, down 0.6 percent from the previous close.
U.S. gold lost 0.8 percent to $1,745.30.
Technical analysis suggested that spot gold could extend losses to $1,717 an ounce after it broke below the support at $1,747, said Reuters market analyst Wang Tao.
The upbeat U.S. data, together with the lingering uncertainty over the euro zone debt crisis, helped the dollar to snap three days of losses, putting pressure on dollar-priced commodities.
"After QE3 there were a lot of longs in gold," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong, "Since $1,780-$1,790 seemed heavy, some funds sold positions to take profit and now the long positions are getting squeezed."
Net length rose to 198,194 contracts in the week ended October 9, the highest level in nearly 14 months, the latest position data on U.S. gold futures and options shows.
Attention will be on a string of data from China, including a third-quarter gross domestic product number likely to show that economic growth slowed for a seventh straight quarter to its weakest since the depth of the global financial crisis.
Holdings of gold-backed exchange-traded funds slipped for the second session straight to 74.979 million ounces on October 11, but were close to the record of 75.03 million ounces hit earlier last week.
Among other metals, spot silver dropped to a one-month low of $32.02, spot platinum fell to a 2-1/2-week low of $1,627.49, and spot palladium slid to $627.22, its lowest in two weeks.
