Spot gold fell 0.8 per cent to $1,797.25 per ounce by 1124 GMT, having touched its lowest since May 6 at $1,794.19.
US gold futures fell 3.3 per cent to $1,799.80 per ounce.
A majority of 11 Fed officials projected at least two quarter-point rate rises for 2023, even as officials in their statement pledged to keep policy supportive for now to encourage a jobs recovery.
The announcement on Wednesday prompted a 2.5 per cent slide in gold with the dollar hitting a two-month high and yields also jumping.
Along with the Fed’s unexpected change of stance, “higher interest rates in the US – while other major central banks probably are going to wait longer with changing monetary policy – has strengthened the dollar. So it’s a double whammy for gold,” Quantitative Commodity Research analyst Peter Fertig said.
Higher interest rates raise the opportunity cost of holding non-yielding bullion.
For now the market trusts the judgement of the Federal Reserve on inflation being transitory and until data potentially proves them wrong, gold and also silver may face another challenging period, Ole Hansen, head of commodity strategy at Saxo Bank said in a note.
Adding to gold’s headwinds, the US central bank also said it would now consider, at every subsequent policy meeting, whether to taper its asset purchases, and downgraded the risk from the coronavirus pandemic given progress in vaccinations.
But “If the economic recovery that is just beginning leads to further rising prices, this should also support the yellow metal,” said Alexander Zumpfe, senior precious metals trader at Heraeus.
Silver fell 1.4 per cent to $26.58 per ounce, while palladium was down 1.8 per cent at $2,748.37 and platinum fell 1.8 per cent to $1,102.13.