That boosted the dollar, which makes dollar-denominated commodities more expensive for holders of other currencies.
It also sparked a sell-off in treasuries that drove 30-year bond yields above 3 percent, making them cheaper and more lucrative for those looking to invest in risk-free assets.
Gold is also seen as a risk-free asset, but it earns nothing and costs money to store and insure.
Spot gold was up 0.24 percent at $1,198.45 an ounce by 2:50 p.m. ET, having fallen as low as $1,188.04 after the U.S. data was published. It was still up 1.9 percent on the week.
U.S. gold futures were down 0.09 percent at $1,198.7.
The gold price has risen 6.5 percent since a mid-December low, and touched $1,206.98 on Thursday to reach its highest level since Nov. 23, after President-elect Donald Trump failed to elaborate on his plans to cut taxes and boost infrastructure spending.
"There's clearly plenty of new long positioning that has come into the market and at these (price) levels there's room to take profit," said Mitsubishi analyst Jonathan Butler.
Higher gold prices depressed physical sales in Asia this week. In India, the world's second-largest consumer of the metal, higher prices prompted retail buyers to postpone purchases for wedding season.
Investors were looking ahead to Trump's inauguration on Jan. 20, when they will again be looking for detail on his plans for the U.S. economy.
"Trump's economic policies, in particular tax cuts for corporates, could lead to ever-higher equity valuations that divert funds away from bullion," he said.
Analysts at Scotiabank, however, said they expect gold to strengthen further if support at $1,178 an ounce holds.
Several Fed officials on Thursday cautioned that Trump's
fiscal and tax plans could spur a short-term economic boost that would result in longer-run inflation and debt problems, potentially raising demand for gold as an inflation hedge.