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.
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.
"Gold was up after weaker U.S. jobless claims data ... the downside is also limited by nervousness ahead of the Ukrainian election,'' VTB Capital analyst Andrey Kryuchenkov said.
"But there is nothing to support gold in terms of physical or investment demand.''
Investors were looking to Ukraine's presidential election and a European Parliament election as developments that could lead gold to break from its narrow trading band of the last few sessions.
Holdings of the SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, fell 3.3 tons to 776.89 tons on Wednesday, the lowest since December 2008. The outflow was the biggest since April 30.
The fund is considered a good measure of investor sentiment and can influence prices due to the size of its holdings.
In the physical markets, India's central bank eased gold import rules on Wednesday by allowing seven more private agencies to ship the metal, a move that industry officials say could increase supplies and reduce premiums in the peak wedding season.
India is the second-biggest gold buyer after China.
Among other precious metals, platinum rose to its highest since September at $1,493.90 an ounce after the chief executive of Impala Platinum said a four-month mining strike in South Africa could last much longer.
Palladium was up 0.9 percent at $834 an ounce after climbing to a 2-1/2-year high in earlier trade.
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