Spot gold was bid at $1,318.95 an ounce at 5:35 a.m. ET, against $1,323.60 late in New York on Thursday, having earlier fallen as low as $1,315.09. U.S. gold futures for December delivery fell $6.40 an ounce to $1,319.20.
Spot prices rallied sharply to a record $1,387.10 an ounce late last week but have struggled to maintain traction as the dollar rebounded from lows amid fears expected U.S. monetary easing had been too heavily priced into the market.
"The main pressure is the dollar, but also profit-taking," said Commerzbank analyst Eugen Weinberg. "There has been so much hot money flowing into the markets over recent weeks that it is not surprising to see profit-taking on the current weakness."
The dollar was on track for its first weekly rise in six weeks versus a basket of major currencies. Traders are awaiting this weekend's G20 meet in South Korea for direction, though significant action is not expected.
The dollar's strength has led to a 3.6 percent drop this week in gold, now heading for a decline roughly equivalent to its last big fall in mid-July. Pressure from technical factors is being brought to bear, analysts said.
"In all these markets, there are chart patterns which form as the market moves on the way up and it triggers plays and stops on the way down," said ANZ Bank analyst Peter Hillyard.
"Some of the minor chart points have been breached and this is causing the market to come back," he added. "But I'm not surprised. It has had a fabulous run-up and a correction back $70 is nothing, really."
Good physical demand from traditional bullion-buying centers such as India is strengthening as prices descend, he added, which is likely to support the market above $1,300 an ounce.
"Physical demand is certainly a feature, but it isn't enough yet to mop up that selling," he said. "Investor selling is always going to beat physical demand, but often what it (physical demand) does is herald where the market is going to go next."
INDIAN BUYING PICKS UP
Dealers in India reported they were continuing to stock up for forthcoming festivals as prices extended losses. "I have many advanced orders at $1,319 or below," said one dealer with a bullion dealing private bank.
The world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, saw a further drop in its holdings on Thursday, however. Gold held by the fund dropped 0.9 metric tons, its 11th session of outflows in 15.
On the supply side of the market, African Barrick Gold, which was spun off from the top world gold miner Barrick Gold earlier this year, reported weaker-than-expected production for the third quarter.