Gold gained as much as $25 overnight to a 10-day high of around $1,225/oz in early trade Thursday.
The move higher followed a rise in US interest rates late Wednesday in which the Federal Reserve also signaled it would be sticking with previous projections of three rate increases this year, defying some predictions of a more aggressive forecast.
"As expected, the US Federal Reserve raised interest rates by 25 basis points. However, it gave no indication beyond this step that it might hike interest rates more quickly in future than previously signaled," Commerzbank said in a note Thursday.
The Fed lifted its target range for the federal funds rate to 0.75-1.0% Wednesday, for the second time since December and only the third since the financial crisis.
Markets had priced in a 25% probability of a fourth rate rise before the Fed policy announcement, according to CME Fed Fund Futures, with expectations of a June lift at around 50%.
The more cautious Fed outlook also helped the dollar lower. The US Dollar Index was down to below 100.70 Thursday morning, a one-month low, to the benefit of most commodities, including gold.
A fall in 10-year Treasuries to below 2.5% Thursday for the first time in 10 days provided extra support.
At the same time, with US inflation recently reported at a five-year high of 2.7% in February, and the Fed stating it will stick to a gradual path of rate rises even if inflation is above its target 2%, gold could still benefit from negative real rates in the medium term.
"After all, gold will therefore not only be in demand as a store of value, but will also profit from the negative real interest rates, which will presumably continue for some time yet," Commerzbank said Thursday.
Elsewhere, despite leading polls at the start of the year, the Dutch right-wing Freedom Party came second in Wednesday's general election, behind the ruling VVD party.
Political uncertainty has supported gold for much of 2017, following surprise results in the UK and US last year, on the concern that populist and anti-globalization parties could take hold in Europe.
Attention now turns to the French general election in May, in which another right-wing populist party, Front National, has been leading in some polls, although the result in the Netherlands could go some way to weaken its chances.
