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The safe-haven asset was also weighed down by Asian stocks that drifted upwards on Friday and as the dollar index, which measures the greenback against a basket of six major currencies, held steady.
Bullion has been under pressure since the prospect of an imminent rate hike was indicated by U.S. Federal Reserve meeting minutes released last week and has been consistently supported by key central bank officials. An increase in rates would raise the opportunity cost of holding gold.
"Gold is not an interest-bearing asset so that is the reason a majority (traders) might want to wait on the sidelines, or, even move out of gold at the moment," said Brian Lan, managing director at Singapore-based gold dealer GoldSilver Central. "Some traders might just exit the market for now and see where it goes before they come back in."
Meanwhile, the Atlanta Fed on Thursday predicted the country's economy is on track to grow by a 2.9 percent annualized rate in the second quarter, following the latest data on durable goods orders and advance goods trade.
The gold market is awaiting further direction from Fed Chair Janet Yellen's comments at a panel event hosted by Harvard University on Friday.
"If she (Yellen) nudges expectations towards a rate increase, the futures fund curve should start to show a higher probability of an imminent move," said INTL FCStone analyst Edward Meir. "At this point, the dollar could start to stabilize and perhaps weaken given that a rate hike would now be mostly discounted."
Gold has pared this year’s rally after retreating more than 5 percent in May as investors raised bets on the Federal Reserve increasing interest rates from as early as next month, causing the dollar to rally. Higher rates curb bullion’s appeal against interest-bearing assets. Fed Chair Janet Yellen is due to speak on Friday at Harvard University after a number of regional Fed presidents have indicated their willingness to tighten policy.
“Gold could test $1,200, a scenario that will grow more likely if the market consensus around Fed tightening builds,” said Jordan Eliseo, Sydney-based chief economist at trader Australian Bullion Co. “Whilst traders could trade the short side, for a medium-term investor, we’d buy into this correction.”
Reference: Reuters, Bloomberg
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