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Gold gave up gains after hitting a nine-week high above $1,100 an ounce on Friday, as China guided the yuan higher for the first time in nine days, supporting Asian equities.
The People's Bank of China set the midpoint rate of the yuan higher, after allowing the biggest fall in five months in the previous session.
That move, along with Beijing's deactivation of a circuit breaker mechanism in the stock market, sent Chinese shares up about 2 per cent on Friday.
The CSI300 index has slid 10 per cent in the first week of 2016, despite the modest gains on Friday.
Jitters over the Chinese economy spooked global stock markets and sent investors sprinting to safe-haven assets this week, sending gold prices sharply higher.
Spot gold had dropped 0.5 per cent to $1,103.26 an ounce by 0314 GMT, after climbing to $1,112 earlier in the session, its highest since November 4.
US gold futures also fell from a nine-week high.
"For now, the only way to trade gold is to take a view on the equity markets and on the Chinese market in particular, as it seems to be the driving force that is pushing the rest of the space lower," said INTL FCStone analyst Edward Meir.
Gold is often seen as a hedge against geopolitical and financial uncertainty, along with other haven assets such as the Japanese yen and US Treasuries.
Safe-have rallies, however, tend to be short lived. Riding on the back of earlier gains, gold was set to post its best week since August with 4 percent gains. Asian shares ticked higher on Friday, taking cues from the Chinese markets, but were set to post their worst week in four years.
"The widespread tumult in the world markets leaves investors with reduced near-term options and some are opting for gold, at least until the financial markets stabilise. The gold rally can continue until investor confidence is restored," said HSBC.
Assets of SPDR Gold Trust, the top gold-backed exchange-traded fund, rose 0.65 percent to 645.13 tonnes on Thursday, the first increase in three weeks. With the US non-farm payrolls report due later on Friday, the focus later in the session could turn to the U.S. economy. A strong report could prompt the Federal Reserve to raise US rates at a faster pace.
Higher rates could dent demand for non-interest-paying gold while boosting the dollar.
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