Spot gold was at $511.20/$511.90 an ounce by 1534 GMT, down from $513.70/514.40 last recorded in New York late on Wednesday, when it rose more than $6.
The metal climbed up to $517.75 on Thursday and overall market tone was still positive.
"The market is very thin at the moment so the funds are pushing for good close to the year, because they will get valued according to their performance," said Jeremy East, global head of precious metals at Commerzbank.
"I wouldn't be surprised to see some profit taking."
Gold has surged 20 percent this year as funds diversified into the metal from other assets amid worries about inflation and economic growth, and the market is seen moving higher in 2006. It spiked to a near-25-year high of $540.90 this month.
James Moore, analyst at TheBulliondesk.com, said any drop to around $505 would attract more buyers and support prices, while players might avoid buying at about $520-$525 in the near term.
Analysts said that a rare move in US Treasuries this week had also encouraged investors as doubts about the future health of the US economy mounted.
Benchmark 10-year US Treasury yields fell below two-year yields for the first time in five years this week.
"The fund interest is still very strong, probably also encouraged by the latest CFTC data that shows a fall in the net length, giving speculators more confidence to extend their long positions," said Yingxi Yu, analyst at Barclays Capital.
The weekly report by the Commodity Futures Trading Commission, a US regulator, showed speculative net long position in New York's COMEX market falling to 156,170 lots as of December 20 from 156,331 a week earlier.
Gold has been getting support from positive fundamentals as mine supply is seen almost stagnant in the coming years, while global jewellery demand has been strong.
Dealers noted a drop in liquidity in the last days of the year, with many players away on holiday. Bullion trading in New York and London will again be shut on Monday, January 2, for the New Year holiday.
In other precious metals, platinum fell to $960/964 an ounce from $967/971 in New York, while palladium declined to $249/$253. Spot silver was at $8.75/8.78, down from $8.84/8.87.