Markets fear that an economic recovery could prompt the US Federal Reserve to continue or increase the pace of tapering its bullion-friendly monetary stimulus.
The dollar pushed higher on Friday and Asian stocks clawed their way off session lows, also weighing on gold.
"Looking ahead the gold market may be more interested in the next FOMC meeting slated for 28-29 January," said James Steel, chief precious metals analyst at HSBC.
"In the near term, we are likely to see sideways trading, as the impact of a negative investment climate is offset by good physical demand."
Spot gold was nearly flat at $1,240.90 an ounce by 0745 GMT, and was heading for a 0.5 percent drop for the week.
The latest economic data from the United States showed that the number of Americans filing new claims for unemployment benefits fell for the second consecutive week last week, suggesting a sharp step-down in job growth in December was likely to be temporary.
The better labour market tone was also captured by a survey on Thursday showing an acceleration in manufacturing activity in the Mid-Atlantic region, accompanied by a rise in factory jobs.
Earlier this week, the World Bank raised its forecast for global growth for the first time in three years as advanced economies started to pick up pace, adding to the pressure on gold prices.
In China, premiums for 99.99 percent purity gold on the Shanghai Gold Exchange jumped to about $17 an ounce from $13 overnight.
Buying from China, the biggest gold consumer, has been robust in recent weeks ahead of the Lunar New Year holiday on Jan. 31.
"However, we expect this to fade in coming weeks as Chinese New Year passes, leading to a short-term pullback in the gold price," ANZ analysts said in a note.
Among other precious metals, platinum gained 0.3 percent as members of South Africa's Association of Mineworkers and Construction Union voted in favour of a strike over wages at the world's third-biggest platinum producer Lonmin.
AMCU members have voted in favour of a stoppage at Impala Platinum, and the union will canvas its rank and file at Anglo American Platinum as well.