US housing and factory data on Thursday showed the economy still gaining strength in December but at a pace unlikely to cause the Federal Reserve to rethink its stimulus program.
The gross domestic product data due later today is expected to show the world's biggest economy picking up speed but short of the pace needed to bring down unemployment.
Spot gold fell to a low of USD 1,308 an ounce, and was trading at USD 1,312.16 at 0350 GMT.
Gold is on course for a fourth straight week of declines, its longest losing streak in a year. It was headed for a 7.4 percent monthly fall, it biggest since October 2008.
US gold fell about half a percent to USD 1,311.9.
"It does seem sentiment has been shaken and technical charts aren't looking fantastic," said Yingxi Yu, an analyst at Barclays Capital.
Spot gold is expected to fall more to USD 1,290 per ounce, as a downtrend is intact and bearish momentum strong, said market analyst Wang Tao.
The Relatively Strength Indicator on spot gold hovered around 30, a threshold below which is seen as oversold territory. The RSI on gold had been above 30 since September 2008.
A buying spree in China and Hong Kong before the Lunar New Year has slowed down as the holiday looms next week, but some buyers were still buying betting on future price gains.
"There's a lot of physical buying from Thailand, Indonesia, China and Hong Kong, for delivery after the Lunar New Year," said a Singapore-based dealer.
"Gold should be able to hold the USD 1,300 level for now. Physical demand is still there. People are bullish for the long term, and they will take the opportunity to enter the market."
Inflation pressure has been rising in emerging economies, and now is spreading to developed countries. South Korea's government said the inflation situation is continuing to deteriorate due to rising farm products prices and other factors.
After India raised interest rates earlier this week, for the seventh time since March, market players are also eyeing further possible tightening from Beijing.
Spot silver fell to a 2- month low of USD 26.38 an ounce before regaining some ground to USD 26.58. Silver was on course for a fourth successive week of losses, its longest losing run since July 2009.