The yellow metal hit a 16 1/2-year high at $456.75 an ounce in December on worries about the ability of the United States to fund its ballooning current account and budget deficits.
Spot gold was quoted at $437.00/438.00 an ounce, versus $437.20/437.70 last quoted in New York on Thursday.
The US market is closed on Friday for the New Year holiday. The euro traded at $1.3609, down from $1.3647 in New York, where it hit a fresh record high at $1.3667. But currency traders believe the dollar's downtrend will continue, extending the Europe's Bull Run well into 2005.
The physical gold market was quiet, with many investors already on holiday. The Tokyo gold futures market is closed until January 4. Jewellery demand was slow in India, mainly because gold had been trading in a choppy $433 to $445 range this week.
Price-sensitive India is the world's largest gold importer and consumer. "People are very confused. They basically don't know what is going to happen (to price)," said Amity Jupiter, a bullion dealer in New Delhi.
There were also worries about declines in sales in the Indian states hit by Sunday's devastating tsunamis, which killed more than 125,000 people across the Indian Ocean coastal areas.
"Sales will definitely come down. Markets are affected by the tsunamis," said Guppy, adding that victims of the disaster would focus on rebuilding their lives. A 9.0 magnitude undersea earthquake off the Indonesian Island of Sumatra triggered the tsunami.
Some dealers said the devastation from the tsunamis sparked only limited safe-haven buying in Asia because investors, especially those in Japan, were already on holiday.
Dealers said gold would rise to $450 in January and probably move towards $500 an ounce later in 2005 on an expected further weakening of the dollar, lower mining output and prospects of rising demand in main buyers India and China.
"Gold may experience a technical correction, but I am sure it will return to $450 an ounce next year with the euro trading above $1.36 against the dollar," said one Hong Kong dealer.
Dealers also expected more bullion trading centres to launch exchange-traded funds (ETF), which could lead to an additional demand of up to 400 tonnes in 2005.
In other precious metals, spot platinum was quoted at $858/863 an ounce, versus $856.50/861.50 in New York. Sister metal palladium was little changed at $182/187 an ounce.
Silver was at $6.80/6.83 an ounce, compared with $6.79/6.82 in late US trade.