Gold and the dollar tend to trade inversely with one another.
On the Comex division of the New York Mercantile Exchange, gold futures for December delivery traded at USD1,267.00 during U.S. afternoon hours, down 2.31%.
Gold prices hit a session low of USD1,262.60 a troy ounce and high of USD1,294.50 a troy ounce.
Gold futures were likely to find support at USD1,262.60 a troy ounce, the earlier low, and resistance at USD1,330.10, Tuesday's high.
The December contract settled down 0.79% at USD1,296.90 a troy ounce on Thursday.
Expectations for an end to the U.S. fiscal deadlock began to build after Republicans on Thursday offered to extend the government's borrowing authority for several weeks, temporarily staving off a default and bolstering demand for the greenback.
The White House has yet to agree on the offer, though talks between President Barack Obama and congressional Republicans continued Friday, which supported the greenback and sent gold prices falling, with declines notably sharp due to one large trade earlier in the session.
Elsewhere, the Thomson Reuters/University of Michigan's preliminary consumer sentiment index for October fell to 75.2 from a reading of 77.5 in September.
Analysts were expecting a downtick to 76.0.
The study also found that inflation expectations for this month declined to 2.9%, from 3.3% in September.
Elsewhere on the Comex, silver for December delivery was down 2.96% at USD21.248 a troy ounce, while copper for December delivery was up 0.70% and trading at USD3.271 a pound.
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