The drop puts gold futures at their lowest level since Feb. 15, when gold traded as low as $1,217.50.
Gold prices have retreated sharply since failing to decisively break resistance at their 200-day moving average of $1,261 this week.
"The market has responded very clearly to the more aggressive stance by FOMC members regarding rate hikes in March," Mitsubishi analyst Jonathan Butler said. "It's fair to say that a rate hike in March is pretty much priced into gold."
Gold is highly sensitive to rising U.S. interest rates because they increase the opportunity cost of holding non-yielding bullion, while boosting the dollar in which it is priced.
The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, reported a second daily inflow on Thursday, of 1.8 tons, bringing the weekly rise to 4 tons.
"With Federal Reserve President Yellen on the wires tonight, we look to see further weakness across the precious complex should she, as expected, promote the potential for an interest rate increase in March," MKS precious metals trader Sam Laughlin said in a note on Friday.
"Initial support for gold sits around $1,230, while below this we look to the 100-day moving average at $1,210."
gained 0.91 percent to $17.92, after falling 3.5 percent on Thursday, its biggest one-day drop in 11 weeks. It is set to end the week 3.4 percent lower.
gained 0.03 percent to $767.47. rose 0.86 percent for the day at $993.75.