Gold prices were on track for their weakest session since December on Thursday, buoyed by a firm dollar and rising U.S. rate hike expectations in March following buoyant U.S. economic data and hawkish comments from Federal Reserve governors.
Spot gold was down 1.39 percent at $1,231.56 an ounce, on track for the biggest one-day fall since Dec. 15.
U.S. gold futures settled down 1.45 percent at $1,231.90. Futures for April delivery settled at $1,232.90, down $17.10.
Gold took a hit after data on Thursday showed U.S. jobless claims fell to a 44-year low. Labor tightness, combined with rising inflation, could encourage the Federal Reserve to raise interest rates at its March 14-15 policy meeting.
"The short-term risk is probably skewed to the downside. The previous two occasions ahead of a Fed hike, we've seen gold weaken only to rally in the aftermath and that could potentially be seen once again," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.
Fed Governor Lael Brainard said on Wednesday that an improving global economy and a solid U.S. recovery mean it will be "appropriate soon" for the Fed to raise rates, and on Thursday Fed Governor Jerome Powell said "the case for a rate increase in March has come together."
"March is now looking like a likelihood," said Rob Haworth, senior investment strategist for U.S. Bank Wealth management, referring to the possibility of a rate hike.
"You're getting people stepping back in their gold trade." Fed Chair Janet Yellen and Vice Chairman Stanley Fischer will speak on Friday, likely providing further signals on the U.S. central bank's policy path.
Further weighing on gold were strong stock markets and dollar gains.
A correction in gold, however, is likely to be shallow as investors remained friendly to bullion as a hedge against global uncertainty and rising inflation, analysts said.
ABN Amro lifted its year-end 2017 gold price forecast by $200 to $1,300 on Thursday, but said prices would likely consolidate until turning higher later in the year.
"We think that the U.S. dollar rally is behind us and this is a positive for gold prices," said analyst Georgette Boele.
Among other precious metals, spot silver fell 3.8 percent to $17.71 an ounce. Platinum was down 3.06 percent at $981.99, after falling below its 200-day moving average, while palladium dropped 1.42 percent at $764.25.
"The current strength in (platinum group metals) prices doesn't appear to be justified by fundamentals," Chief Commodities Economist Caroline Bain at Capital Economics said in a note.