Interest rates futures implied traders saw a 98 percent chance the Fed would raise interest rates by a quarter point next week, and about a 50 percent chance it would raise rates by at least another quarter point by June 2017, according to CME Group's FedWatch program.
"A rate hike is almost universally expected. This should take some of the sting out of the impact on gold when a hike is officially announced," HSBC analyst James Steel wrote in a note.
Expectations of further U.S. interest rate increases lower demand for the non-interest-paying bullion.
The number of Americans filing for unemployment benefits fell from a five-month high last week, pointing to labor strength that underscores the economy's sustained momentum and reinforcing the case for a Federal Reserve rate increase.
Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.34 percent to 860.71 tonnes on Thursday. SPDR holdings have fallen nearly 9 percent since November and are on track for a fifth straight week of losses.
Elsewhere, silver was down 0.2 percent at $16.97 an ounce and platinum fell half a percent to $934.20.
Palladium was steady at $736 an ounce, after reaching its lowest since Nov. 18 in the previous session.
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