Analysts said, however, rallying U.S. equities amid some positives signs for the economy and no indication of abatementin gold-backed exchange-traded funds outflows could pressure the metal.
"The fact that the leading U.S. equity indices closed at record highs yesterday—which could prompt investors to switch once again from gold ETFs to equities—is problematic for gold," said Eugen Weinberg, head of commodity research at Commerzbank.
"Any prolonged recovery of the gold price is almost inconceivable unless the ETF outflows abate," Weinberg said.
Spot gold was down 0.4 percent at $1,280 an ounce and on track to snap a four-day winning streak.
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U.S. gold futures for August delivery settled $2.30 lower at $1,277.60 an ounce. Gold pared losses after government data showed that U.S. producer prices rose more than expected in June, pointing to increased inflation.
Gold is usually seen as an hedge against inflationary pressures, but stronger inflation could also make the Fed more comfortable about reducing its stimulus.
Holdings of the world's largest gold-backed exchange-traded fund SPDR Gold Trust remained unchanged at 30.2 million ounces, or 4 1/2-year lows, on Thursday. The fund posted the biggest weekly loss of 2.6 percent since the end of April.