Mounting fears over a potential Greek debt crisis and escalating worries about Europe's ability to resolve its debt crisis sent the U.S. dollar higher against all major currencies, undermining the appeal of gold. Strength in dollar is weighing on gold, which is driving prices lower.

Some investors also sold the metal to cover losses in other markets on speculation the European debt crisis is worsening.

The euro fell to seven-month lows against the dollar as more negative news flow from Europe hit already trembling sentiment, and markets are also bracing for possible ratings downgrades on France's top banks who have highest exposure to Greek debt.

At the Multi Commodity Exchange, gold for delivery in October touched a low at Rs 27,842 per 10 grams, and was trading in the range of Rs 28,094 – Rs 28,100 per 10 grams around 1:31 pm IST.

Gold for immediate delivery also fell and was seen at Rs 27,890 per 10 grams.

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