"The figures out of the U.S. were not bad at all," said Afshin Nabavi, head of trading at MKS. "Because of that, I think a lot of people must have gone intraday short."
Short-covering later in the session helped the metal stabilise, although the market remained cautious as uncertainty around U.S. monetary policy remained in focus.
Gold fell to 5-1/2 year lows earlier this year on expectations that the U.S. central bank will raise interest rates this year, potentially lifting the opportunity cost of holding non-yielding bullion.
Market expectations of higher rates have been shaken recently by sluggish U.S. data and concerns about the global economy. But the newest figures could add to the case for a rate rise in December.
"People are getting a bit more nervous about what's coming up," said Georgette Boele, FX and commodity strategist at ABN AMRO. "The market has been very dovish regarding the Fed and they have only become more dovish recently."
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Sentiment was further dampened by technicals on Thursday, as gold drifted away from the 200-day moving average around $1,175 per ounce. The metal had held near the long-term resistance level for six straight sessions, after last week breaking through it for the first time since May.
"We need a real break on the upside," Nabavi said. "And we're not really having this."
Gold is expected to keep edging down into next year. Goldman Sachs estimates prices at $1,100 in three months, $1,050 in six months and $1,000 in 12 months.
Silver was up 1 percent at $15.83 an ounce, platinum rose 0.6 percent to $1,005 an ounce and palladium gained 0.9 percent to $678.10 per ounce.
China imported 338 tons of silver in September, up 39 percent year-on-year, data showed on Wednesday. Imports in the first nine months of the year rose 21.6 percent from the same period last year.