By Zandi Shabalala
LONDON (Reuters) - Gold fell on Thursday as the U.S. Federal Reserve signalled an interest rate increase by the end of the year after policy was kept unchanged in September, as expected.
Bullion gained late on Wednesday as the Fed stayed pat on interest rates in the world's biggest economy. But it also indicated it could still tighten monetary policy by the end of the year as the labour market improved further.
Gold is highly exposed to interest rates, particularly in the United States, as higher rates lift the opportunity cost of holding non-yielding assets and boost the dollar, in which gold is priced.
Spot gold was down 0.2 percent at $1,333.61 an ounce by 0940 GMT, while U.S. gold futures rose 0.5 percent to $1,337.50 an ounce.
"It's a mixed bag because on one side no action was taken to hike rates but at the same time the hawkish sentiment has increased and the number of officials in favour of a rate hike has increased," Capital Economics analyst Simona Gambarini said.
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"Investors and markets are taking bets on a December hike and that is weighing on gold prices."
Markets will be closely analysing upcoming U.S. data such as GDP, non-farm payrolls and inflation for clues on the direction of rates. Gambarini said this could lead to volatility in gold prices.
"The Fed have signalled that if everything stays the way it is then December is more than likely the next rate rise and this will keep a lid on any rally," David Govett, head of precious metals at Marex Spectron, said in a note.
"However, gold's good recovery once again from the support area will discourage any aggressive selling," he said, adding the metal would trade between $1,310-$1,350 in the absence of fresh news.
In other asset classes, world shares, bonds and most commodity prices rallied on Thursday, while the dollar softened.
Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, rose 0.60 percent to 944.39 tonnes on Wednesday.
Among other precious metals, silver rose 0.5 percent to $19.90 an ounce after touching a two-week high early in the session.
Platinum rose 0.2 percent to $1,050.49 per ounce. It climbed more than 2 percent in the prior session to touch its highest since early last week at $1,056.60.
Palladium rose 1.2 percent to $691.50. It hit a near two-week high of $694.30 in the last session.
(Additional reporting by Swati Verma and Nallur Sethuraman in Bengaluru; Editing by Subhranshu Sahu and Mark Potter)