Gold extended last week's 7% drop on Monday, hurt by a stronger dollar, worries over an early end to Federal Reserve stimulus and fears of a cash crunch in China.
But the fall in prices failed to revive physical demand as much as when bullion tumbled its most in 30 years in April.
Investors also continued to dump holdings in gold exchange-traded funds, despite the metal's usual appeal as a so-called safe-haven asset.
"The market is very bearish at the moment and we continue to see more liquidation," said a trader in Hong Kong. "We can see some physical buying interest but not enough to support prices."
Spot gold had lost 0.5% to $1,290.65 an ounce, not far from a near-three year low touched last week. It rose over 1% on Friday but recorded its worst weekly performance since September 2011.
Comex gold fell $2 to $1,290.10.
Markets were roiled last week after Fed Chairman Ben Bernanke laid out a strategy for the US central bank to start scaling back its $85 billion monthly bond-buying programme.
Elsewhere, China's central bank faced down the country's cash-hungry banks on Friday, letting interest rates again spike to extraordinary levels of some 25% for some banks, stoking worries of a cash crunch in the world's no. 2 economy.
Hedge funds and money managers slashed their bullish bets in gold futures and options for a second consecutive week to the lowest level in a month, a report by the Commodity Futures Trading Commission showed on Friday.
Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell a further 0.54% to 989.94 tonnes on Friday - the lowest in over four years.
"The main problem for gold is the current lack of investment interest," Credit Suisse analysts wrote in a note.
"The $1,300 mark is a key level to watch and a sustained break to the downside would worsen the technical picture."
Bullion is down 23% for the year, heading for its worst annual performance since 1981.
Physical demand in the top two gold consumers India and China was muted, unlike the mid-April sell-off in gold which prompted a frenetic rush, pushing up premiums and tightening supplies.
Indian demand has been hurt by new government rules on financing and imports, as well as a weak rupee.