But the long-term outlook remained positive on expectations that the dollar would weaken because of concerns about U.S. economic growth, dealers said.
"It's just a consolidation phase. I think we will see gold higher later in the year, but short-term sentiment is little damaged," a European precious metals trader said.
The release of key U.S. economic data this week might provide cues about the dollar outlook and set direction for the precious metals market, he said, adding that gold also was under pressure because of a sharp decline in base metals prices.
Spot gold fell as low as $624.20 an ounce and was quoted at $625.20/626.20 by 0957 GMT, down from $627.70/628.70 in New York late on Wednesday.
The dollar built on the previous day's gains versus major currencies, with investors looking to see if key data on jobs and the service sector matches a pick up in U.S. manufacturing.
Gold, which often moves in the opposite direction of the dollar, tumbled more than $12 in the U.S. market on Wednesday as the currency rallied after the Institute for Supply Management said its manufacturing index climbed.
The metal ended 2006 on a high note, rising 23 percent on an influx of funds diversifying their investments into markets with the potential for higher returns than stocks. It spiked to a 26-year high of $730 an ounce on May 12, 2006.
"There is a fair bit of key economic data in the U.S. over coming days, and that really is going to determine the fate of the greenback and where gold prices are likely to trend," Craig James, chief economist at Commonwealth Securities in Sydney, said.
The market awaited the release of the closely watched non-farm payrolls report on Friday. A weak reading would likely strengthen the view the U.S. Federal Reserve may start cutting interest rates in coming months to shore up a slowing economy.
"Falls in energy prices and other commodities, such as copper and other base metals, are worrying, but gold will continue to draw a lot of safe-haven demand with the situation in Iran unresolved and continuing tension in the Middle East," said Hisaaki Tasaka, a market analyst at Ace Koeki Co. Ltd.
Copper futures on the London Metal Exchange hovered near nine-month lows on worries about slowing demand for the metal. Other base metals also declined.
In other precious metals, silver fell to $12.47/12.54 an ounce from $12.58/12.65, while platinum slipped to $1,121/1,126 an ounce from $1,126/1,132. Palladium was unchanged at $334/339 an ounce.
