The decline put bullion on course for a second consecutive monthly loss, reflecting growing investor concerns that persistent inflation could force the US central bank to maintain a tighter monetary policy.
Spot gold dropped 0.5 per cent to $4,000.54 per ounce as of 0511 GMT, while US gold futures for December delivery also declined 0.5 per cent to $4,010.10 per ounce.
Market analysts said the precious metal was facing a critical test around the $4,000 price level, with investors closely monitoring whether bargain hunters would step in to prevent further losses.
Tim Waterer, chief market analyst at KCM Trade, said the latest price movement had raised concerns about gold's ability to maintain support around the psychologically important $4,000 mark.
"Gold's slide is asking serious questions of technical support around the $4,000 level. Dip buying has previously limited declines, but it remains to be seen whether value buying will come to gold's rescue," Waterer said.
He added that recent US economic indicators had strengthened the possibility of another interest rate increase by the Federal Reserve in December, further undermining gold's appeal.
"There were enough bullish indicators in the US macro data this week to keep the Fed on track for a potential December hike, which combined with oil at present levels means that gold continues to lose out from an inflation perspective," he said.
The latest US economic figures showed that inflation accelerated in September, as consumers faced higher costs for gasoline and other goods. The development reinforced economists' expectations that the Federal Reserve could consider another interest rate increase in December.
Higher interest rates generally weigh on gold because the metal does not generate interest or dividends. As borrowing costs and returns on interest-bearing investments rise, investors may become less willing to hold bullion.
According to the CME FedWatch Tool, traders were pricing in approximately a 75 per cent probability of a Federal Reserve rate hike in December, highlighting the extent to which expectations of tighter monetary policy have influenced market sentiment.
Meanwhile, rising oil prices added another layer of uncertainty to the global inflation outlook. Crude oil prices advanced on Friday and were heading towards a fourth consecutive monthly gain following reports of an attack on a tanker in the Strait of Hormuz.
The incident heightened concerns over potential disruptions to global energy supplies, particularly amid the ongoing US-Israeli war on Iran. The Strait of Hormuz remains a critical route for international oil shipments, making any security threat in the area a significant concern for energy markets.
Higher oil prices could further increase inflationary pressures by raising transportation, manufacturing and production costs, potentially complicating the Federal Reserve's efforts to bring inflation under control.
Elsewhere, inflationary pressures also remained evident in Asia. Data released on Friday showed that annual core inflation in Japan's capital, Tokyo, rose significantly above the Bank of Japan's two per cent target in October, pointing to mounting price pressures in the country's economy.
Other precious metals also recorded losses during Friday's trading session. Spot silver declined 1.6 per cent to $51.53 per ounce, while platinum fell 1.9 per cent to $1,459.75 per ounce. Palladium also weakened, dropping 1.4 per cent to $992.37 per ounce.
All three metals were on course to record declines for both the week and the month, reflecting broader weakness across the precious metals market.
The combination of stronger inflation data, rising energy prices and growing expectations of higher US interest rates continued to weigh on bullion, leaving investors uncertain about gold's near-term direction as it struggled to defend the $4,000 support level.