Gold fell like a stone on Thursday, following three days of gains, and ignored a recovery in the euro as investment demand waned.
Platinum meanwhile fell after two consecutive days of rallies that took the price to its highest since July 2008.
Chinese inflation data showed that price pressures were growing more than expected and could prompt the government to step up its approach to tightening monetary policy, thereby eroding gains in industrial commodities and equities.
Spot gold fell over $20 to $1,348.55 an ounce by 1426 GMT.
Anticipation of rising price pressure in China has in turn encouraged local investors to buy gold as a hedge against inflation, even as investor demand, as reflected by outflows of metal from major exchange-traded funds, continued to wane.
Gold is also reacting to FX market moves, the euro has come off a bit from its little spurt up this week, said Credit Suisse analyst Tom Kendall.
Inflation is an emerging market story at the minute and I think it does play into gold and for demand for physical gold throughout the Asian region.
Premiums for gold bars in Asia are holding around their highest for two years as consumers stock up ahead of the Chinese Lunar New Year in February.
Chinese growth soared past expectations in the final quarter of last year, while inflation slowed less than expected. Beijing expected inflation pressure to remain high in the first quarter due to imported inflation.
Aside from its role as an alternative to currencies, stocks or bonds, gold is often perceived as a hedge against rising inflation risks, in that it maintains its value even as price pressures erode that of other assets.
The euro edged up against the dollar as investors hoped for progress on finding a sustainable way to ease the debt crisis in the euro zone.
While in theory, a weaker dollar would boost gold, the metal's negative correlation to the U.S. currency reached its weakest since late December on Thursday.
Holdings in the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, continued to decline. It fell to 1,251.433 tonnes by Jan 19, its lowest since May 2010.
Buying from the physical side is supporting the market for the time being, said Ronald Leung, a physical dealer at Lee Cheong Gold Dealers based in Hong Kong.
But the unwinding of ETF positions is pressuring gold prices. In the short term, gold is probably going to trade in the range between $1,350 and $1,400.
But this range was already broken to the downside shortly after his remarks, with gold breaking the important support level of $1,350.
Silver, which rose by more than 80 percent in price last year due largely to continuous investment, also came under pressure following another outflow of metal from top silver ETF iShares Silver Trust.
Holdings fell to 10,575.32 tonnes, their lowest in over two months. Spot silver was last down 2.1 percent at $27.83 an ounce, having lost more than 8.5 percent in January, putting it on track for its largest monthly slide since December 2009.
Spot platinum fell over one percent to $1,800.49 an ounce, but was still only 2 percent off Wednesday's 30-month highs.
Compared to the 2010 low of $1444, one could argue that platinum is not cheap right now, said Edel Tully, UBS precious metals strategist.
If we look at palladium at $800, and its near 100 percent appreciation last year, then on a relative basis, platinum is not over-priced. As its fundamentals continue to improve, and supply risks are once again hitting the headlines, it makes full sense that platinum is attracting fresh buying, she said.
Palladium meanwhile was largely unchanged on the day at $811.22, after having risen to a peak of $825.5 in the previous session, its highest since March 2001.