The Federal Reserve is widely expected to hike interest rates at its next policy meeting on Dec. 13-14, weighing on gold prices as the precious metal is not an interest-yielding asset.
However, the hikes are unlikely to beat inflation, said Ned Naylor-Leyland, fund manager at Old Mutual Gold and Silver Fund.
"Right now, people are expecting, for some reason, more rate hikes than inflation even though (Fed Chair Janet) Yellen has explicitly said that the pace of rate hikes will undershoot inflation," he told CNBC's "Squawk Box".
"So what the central banks are telling is that you are continuing to lose purchasing power holding cash, which is good for gold, but the market has decided otherwise short term and is running away with this idea that you are going to accumulate purchasing power holding cash," he added.
On Thursday, gold hit its lowest level since February. Spot gold was flat on Friday morning around $1,174 an ounce in Asia after hitting a 10-month low of $1,160.38 an ounce in the previous session.
The yellow metal had fallen more than 8 percent in November and the outlook is not positive in the short-term, said Singapore's OCBC which is lowering its year-end forecast for the yellow metal to $1,200 an ounce from its previous prediction of $1,300 an ounce.
The house sees two more rate hikes from the Fed in 2017, firming the greenback that will send gold to $1,100 an ounce by the end of the year.
Also weighing on gold is a stronger dollar in which the precious metal is denominated internationally and expectations that president-elect Donald Trump's massive infrastructure plan will spur growth and inflation.