Gold settled higher on Thursday after the U.S. Federal Reserve indicated no intention to raise interest rates soon, but a drop in holdings of the top bullion-backed fund to a five-year low kept gains in check.
Minutes of the Federal Reserve's late April meeting released on Wednesday showed policymakers had discussed exit strategies from its ultra-loose monetary policy. But they also made clear the Fed was not ready to "normalize'' policy or raise interest rates anytime soon, reassuring investors.
Increased central bank liquidity and a low interest rate environment were important factors leading to gains in gold in previous years.
U.S. gold futures for June delivery ended $6.90 higher at $1,295.00 an ounce. Meanwhile, spot gold rose 0.3 percent to $1,295 an ounce, after closing between $1,291 and $1,296 for the past five sessions.
Earlier, palladium prices hit their highest level since August 2011 at $835.75 an ounce, as labor strikes in top producer South Africa dragged on for a 17th week and after an industry report said a shortage of both gold and palladium were set to widen this year.
The dollar's gains - 0.2 percent against a basket of currencies - were limited by a bigger-than-expected increase in U.S. weekly jobless claims.