Gold fell 1 percent on Friday, finishing nearly flat for the week, after growing inflation pressure in China dented hopes for more stimulus from the world's second-largest economy.
The metal slid after data showed China's annual consumer inflation rate quickened to a seven-month high of 2.5 percent in December. Analysts said the inflation data is leaving the economy in a sweet spot now that calls for no change in interest rates.
"A pick-up in the Chinese inflation number has some people thinking maybe the long-anticipated Chinese stimulus may not (happen)", said Frank McGhee, head precious metals trader at Integrated Brokerage Services LLC.
Bullion slipped below its 200-day moving average, failing to hold the previous session's 1 percent gain.
Spot gold was down 0.9 percent to $1,659.87 an ounce in afternoon trading.
For the week, it gained 0.2 percent gain, lifted by better Asian physical demand and rallies in the platinum group metals lifted gold.
U.S. gold futures for February delivery settled down $17.40 an ounce at $1,660.60, with volume about 10 percent above its 250-day average, preliminary Reuters data showed.
Gold is down 1 percent so far this year after posting its biggest quarterly decline in more than four years at the end of 2012. Gold's failure to rise on U.S. quantitative easing has shaken investor confidence in the precious metal.
John Hathaway, a respected portfolio manager for the Tocqueville Gold Fund, said extreme levels of negative sentiment have recently provided excellent entry points for new bullish positions in the yellow metal and gold mining shares.
A pick-up in physical gold buying in China ahead of the Lunar New Year and uncertainty related to the U.S. debt-ceiling crisis suggested gold prices will rebound in 2013, Barclays strategists said in a Friday note.
In Asia, Tokyo gold futures hit a record high as the yen dropped to a 2-1/2-year low after the Japanese government approved $117 billion of spending to revive the economy in the biggest stimulus since the financial crisis.
Silver was down 1.4 percent at $30.38 an ounce.
PGM Up for Week
Platinum group metals, used in autocatalysts, are both on track for gain this week, outperforming gold. PGMs are boosted by improved U.S. auto sales data and a better economic outlook.
Gold's premium over platinum, a historically unusual phenomenon that has persisted since the first quarter of 2012, fell to less than $40 an ounce on Friday, from around $140 at the end of 2012.
Spot platinum was up 0.1 percent to $1,625.01 an ounce. The white metal has risen more than 5 percent so far this year.
Platinum benefited in the second half of 2012 from a deadly wave of violence linked to industrial action in South Africa, source of four out of five ounces of the world's platinum.
Among other PGMs, spot palladium edged up 0.2 percent to $697.70 an ounce. It gained 1.7 percent for the week.