Gold prices erased earlier gains to fall by as much as 1.3% on Monday, pressured by an advancing dollar as fears of a new coronavirus strain gripped markets and forced tougher restrictions.

Spot gold fell 0.3% to $1,874.91 per ounce by 1115 GMT, having earlier hit its highest since Nov. 9 at $1,906.46. U.S. gold futures were down 0.6% to $1,877.70.

"Broadly it is a risk-off sentiment. The forex and equities markets are down. The new variant of the virus has sparked renewed uncertainty in the market and we are seeing a drastic risk aversion," said Bank of China International analyst Xiao Fu.

"Though, gold should gain in these cases as a safe-haven asset, but generally, during these situations we see the dollar stealing the show."

The dollar index gained over 1% and rebounded off multi-year lows to a one-week high as news of a mutant coronavirus caused a dip in the pound and euro. 

European equities also fell in response to stringent lockdowns in Britain that sowed chaos for families and companies just days before it exits the European Union's orbit.

Prices earlier in the session jumped more than 1% on reports that U.S. congressional leaders on Sunday reached agreement on a $900 billion package to aid the virus-stricken U.S. economy.

"The U.S. fiscal package is supporting inflation expectations. As a result, the yield of the 10-year U.S. Tips has fallen the lowest level since September. Falling real rates are positive for gold," said UBS analyst Giovanni Staunovo.

In other metals, silver rose 1% to $26.02 an ounce, having hit its highest since Sept. 16 at $27.38, palladium fell 1.7% to $2,321.36 and platinum dipped 4.7% to $987.58.

"With Europe being hit again by mobility restrictions, the platinum market might suffer as well as it is strongly exposed to Europe, so risk off and with the weakest fundamentals the metal is suffering," added UBS' Staunovo.

(Reporting by Asha Sistla and Diptendu Lahiri in Bengaluru; editing by Barbara Lewis) ((Asha.Sistla@thomsonreuters.com; If within U.S. +1 646 223 8780; outside U.S. +91 80 6182 2808; Reuters Messaging: Reuters Messaging: asha.sistla.thomsonreuters.com@reuters.net))