Gold ticked up on Thursday but stayed near its lowest level in two weeks after the Federal Reserve hinted at a possible U.S. rate hike in December, bolstering the dollar and reducing the appeal of non-interest-paying bullion.
Spot gold rose 0.4 per cent to $1,160.76 an ounce by 0659 GMT, following a 1 per cent slide in the previous session. On Wednesday, the metal fell to $1,152, its lowest since Oct. 13.
US gold futures slid over 1 per cent on Thursday, while silver futures dropped 2 per cent.
"There is some short covering and physical demand after the drop overnight, but on pretty thin volumes," said a precious metals trader in Sydney.
"At these prices gold has already priced in a December rate hike. $1,150 is a big level on the downside, and on the upside I think $1,165 will be pretty hard to break," he said.
The Fed kept interest rates unchanged on Wednesday as expected but surprised with a direct reference to its next policy meeting.
The Fed said raising rates at its next meeting would depend on progress made on employment and inflation, and omitted any reference to global developments affecting U.S. economic activity.
In recent weeks, investors had bet that the U.S. central bank would delay its first rate hike in nearly a decade to next year due to weakness in the global economy and its impact on the United States.
The surprisingly hawkish tone sent the dollar soaring against a basket of major currencies to its highest level in more than two months.
A stronger greenback makes gold more expensive for holders of other currencies, while higher rates also hurt the metal's appeal.
Rate futures traders boosted bets that the Fed would raise rates at its next meeting on Dec 15-16.
Holdings in SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 0.17 per cent to 694.34 tonnes on Wednesday.
Investors will now be closely monitoring U.S. data, including gross domestic product due later in the session, to gauge the strength of the economy and how it could affect Fed policy.
U.S. third-quarter economic growth could surprise on the upside after government data on Wednesday showed the goods trade deficit narrowed sharply to a seven-month low in September.
"If the (GDP) number is stronger than expected, it could reinforce the dollar rally and exert further pressure on gold," said INTL FCStone analyst Edward Meir.
