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Gold dropped 2 percent on Monday, falling for a second straight session after hitting its highest in a year last week, dragged down by a rebound in stock markets and selling from China after the Lunar New Year holiday.

Gold prices fell in Asia on Monday with Japan's economy showing a fourth quarter slump, but copper up ahead of China trade data.

"Gold is lower because of the good bounce in equities and the Chinese selling," said a Sydney-based trader. "There is some profit-taking around but volumes haven't been huge."

“We’ve seen a massive rebound in” U.S. equities on Friday, Bernard Aw, a market strategist at IG Asia Pte in Singapore, said by phone. “So this actually means some kind of short-term reversal in risk sentiment toward more risk appetite.”

Reuters technical analyst Wang Tao said gold may test support at $1,219, with a good chance of breaking below that level and falling more towards the next support at $1,178.

Hedge funds and money managers boosted bullish bets in COMEX gold futures and options in the week to Feb. 9 ahead of the bullion market's biggest daily rally in years, U.S. Commodity Futures Trading Commission data showed on Friday.

Markets in both the U.S. and Canada will be closed for national holidays.

In the week ahead investors will be watching U.S. inflation data for indications on whether the Federal Reserve will raise rates at all this year. As well, European Central Bank President Mario Draghi is to testify on monetary policy before the European Parliament's Economic and Monetary Affairs Committee, in Brussels.