Demand for safer assets, including gold, also weakened after Hurricane Irma wreaked less damage in Florida than had been feared.
Spot gold was down 1.2 percent at $1,330.24 an ounce by 1:54 p.m. EDT (1754 GMT), on track for its biggest one-day drop since July 3. On Friday it touched $1,357.54, the highest since August last year.
US gold futures for December delivery settled down 1.2 percent at $1,335.70.
Gold had rallied 1.6 percent last week on fears of a North Korean missile launch and the impact of Irma on the US economy, helping to drive the dollar to its weakest since January 2015 and US bond yields to 10-month lows.
"Both of these events failed to materialize in a major way," said Saxo Bank analyst Ole Hansen. "The short-term stage has been set for some consolidation (in gold prices). Much depends on where the dollar and bonds decide to go."
The dollar strengthened on Monday, making gold more expensive for holders of other currencies, potentially reducing demand, while higher bond yields increase the opportunity cost of non-yielding bullion.
"It looks like speculators who had established positions to take advantage of a possible rise in risk aversion, were left disappointed as North Korea did not conduct another missile test at the weekend," said Fawad Razaqzada, technical analyst for Forex.com.
"From a technical stand point, gold's weakness also makes sense, but so far it can only be interpreted as a mere pullback from overbought levels, rather than trend reversal."
North Korea on Monday warned the United States that it would pay a "due price" for efforts to impose fresh sanctions on Pyongyang.
In the week to Sept. 5, hedge funds and money managers raised their net long position in COMEX gold futures and options to the highest in nearly a year.
"The long to short ratio is above 20. We haven't seen that for nearly five years," said Hansen.
In other precious metals, silver fell 0.8 percent to $17.78 an ounce, down from Friday's five-month high of $18.21, while platinum was down 1.5 percent at $989.24.
Palladium was 0.1 percent lower at $935.75 an ounce.