The evolution of atomic and electronic structure of small Au (n) (n = 1-16, and 55) clusters doped with a Gd atom has been investigated using density functional theory within generalized gradient approximation for the exchange-correlation energy. Pure gold neutral clusters with n up to 15 are planar. However, with the doping of a Gd atom, the atomic structure of gold clusters changes, and there is a transition from planar-like structures to three dimensional structures at n = 10. The electronic structure of Gd-doped gold clusters shows a sharp increase in the highest occupied-lowest unoccupied molecular orbital (HOMO-LUMO) gap for certain sizes giving rise to their magic behavior. All clusters are magnetic with large magnetic moments ranging from 6 to 8 mu(B) primarily due to the localized 4f electrons on Gd. This makes such clusters with large HOMO-LUMO gaps magnetic superatoms. The main interaction between gold and gadolinium atoms in the clusters is due to hybridization between Au-6s and Gd-5d6s orbitals. Our results indicate the emergence of a wheel structure for Gd@Au-7, a symmetric cage structure at n = 15 for Gd@Au-15 and n = 16 for Gd@Au-16 (+) and Eu@Au-16 corresponding to an electronic shell closing at 18 valence electrons leaving aside the f electrons on Gd while for Gd-doped Au-55 corresponding to 58 valence electrons, a Au9Gd@Au-46 core-shell structure is obtained in which the Gd atom connects the core of Au-9 with the Au-46 shell. The binding energy shows odd-even oscillations with enhancement due to Gd doping compared with pure gold clusters. Such magnetic clusters of gold could have multifunctional biological applications in drug delivery, sensor, imaging, and cancer treatment.