Gold prices are set to drop next week as downbeat Eurozone data points to a stuttering economic recovery in the 17-nation bloc, overshadowing positive US factory activity data.

As many as 13 of 19 analysts polled by a Kitco Gold Survey said they expected gold prices to go down. Three predicted that prices would drop while three others forecast prices to remain unchanged.

Preliminary data from the Eurozone's statistics office showed that inflation unexpectedly dropped to 0.7% year-on-year in October, the lowest for nearly four years.

The unemployment rate in the 17-member bloc hovered at a record high 12.2% in September. As many as 19.4 million people remained out of work across the eurozone.

Meanwhile, data from the United States showed that factory activity further expanded in the month of October. The Institute for Supply Management's index of industrial activity inched up 0.2 percentage points to 56.4 in October, its highest level since April 2011. A reading above 50 points to growth.

"We have suggested that the European economy has not found its legs and deflation was the primary concern. The suggestion that the EU is considering lowering rates re-enforces the weak tone to the European economies. Short term, this will create U.S. (dollar) inflows which should be negative for gold; however, should the issues become more severe, a financial contagion could begin to spread, with gold once again becoming a safe-haven play," said Peter Hug, Kitco's global trading director.

"A drop in the euro on the back of weaker inflation figures and very good U.S. data has strengthened the dollar, in turn weighing on gold and I wouldn't be surprised to see a drop below $1,300 next week if there's more good data out of the U.S,'' Natixis analyst Bernard Dahdah told Reuters .

Spot gold was down 0.9% to $1,311 an ounce on 1 November. Prices edged up 0.4% a week ago, when downbeat US labour market data pointed to sluggish economic growth in the world's largest economy.

For the week as a whole, gold prices dropped 2.9%.

US gold futures for delivery in December finished 0.8% lower at $1,313.20 an ounce, according to Reuters data.

India Demand Tapers

Sluggish economic growth, a weak currency, import restrictions and higher prices have weighed down on gold buying activity in India, the world's largest consumer of the precious metal.

Gold buying is known to peak during the autumn wedding season, and in the run up to the Diwali festival on 3 November.

However, sales are down by as much as 50% this year, Sunil Tejnani, co-owner of Tikamdas Hiranand, a family-run jeweller located in Mumbai's Zaveri Bazar, a bee-hive for gold trade in the country, told CNBC.

Ashok Minawala, director at the All India Gems and Jewellery Trade Federation explained that the rush to buy gold in April, when prices plunged, has reduced festive demand this year.