The dollar fell 0.43 percent against a basket of currencies, amid uncertainty over the fate of U.S. President Donald Trump's tax reform plans.
A U.S. Senate tax-cut bill, differing from one in the House of Representatives, was expected to be unveiled on Thursday, complicating a Republican tax overhaul push and increasing skepticism on Wall Street about the effort.
"Although the dollar's travails have brought a smile to long-suffering bullish gold traders, it is important to note there seems to be an absence of risk aversion premium in gold's price and that its fate will be decided by the dollar alone," said Jeffrey Halley, a senior market analyst with OANDA.
Putting a damper on gold's advance, data from the World Gold Council showed gold demand slid to its lowest in eight years in the last quarter as jewelry buying fell and inflows into bullion-backed exchange-traded funds dried up.
Among other metals, palladium fell 0.23 percent to $1,010.70 an ounce after hitting $1.026.10, its highest since 2001.
"There's been an unease around the platinum market. The impact and weakening in demand in that sector has subsequently benefited palladium. That's why we are seeing that kind of out-performance in the palladium market, which is also particularly tight," said ANZ analyst Daniel Hynes.
Palladium's premium over platinum hovered near its highest since 2001. In September, palladium became more valuable than platinum for the first time in 16 years.
Platinum is more heavily used in diesel vehicles, which have fallen out of favor since 2015's Volkswagen emissions-rigging scandal.
Palladium has benefited from the switch to petrol engines and expectations for growth in hybrid electric vehicles, which tend to be gasoline-powered.
Boele said she was sticking to her view that palladium was overstretched and out of sync with supply/demand dynamics.
"I still think it's going to move lower, but the question is when. We've seen in the past that palladium is very well supported and then all of a sudden it drops like a stone."
Meanwhile, silver shed 0.04 percent at $17.003 an ounce while platinum gained 0.6 percent to $936.55 an ounce.