By Ashitha Shivaprasad
(Reuters) - Gold slightly pared gains on Wednesday after the U.S. Federal Reserve held interest rates unchanged but struck a hawkish stance for future policy.
Spot gold was up 0.6% at $1,942.19 per ounce at 2:41 p.m. EDT (1841 GMT) after rising as much as 0.9% earlier in the session. U.S. gold futures settled 0.7% higher at $1,967.10.
The U.S. central bank held interest rates steady but stiffened its hawkish stance, with a further rate increase projected by the end of the year and monetary policy kept significantly tighter through 2024 than previously expected.
Fed Chair Jerome Powell said officials will proceed "meeting by meeting" on rates and "we are prepared to raise rates further if appropriate."
Soon after the decision, traders reduced bets on interest-rate cuts next year.
"Gold and silver have backed off as the Fed's dot plot was more hawkish than expected. Metals were priced for a more dovish Fed," said Tai Wong, a New York-based independent metals trader.
While gold is considered a hedge against rising inflation, higher rates boost competing Treasury yields, dulling bullion's appeal.
Standard Chartered analyst Suki Cooper said "we expect gold's upside risk to be capped in the near term and upward price momentum may not be sustained until there is increasing market confidence that global and U.S. interest rates are set to move lower, and the dollar softens."
The dollar pared losses and benchmark 10-year yields jumped after the Fed verdict. [US/] [USD/]
"What is still keeping the gold price supported is solid demand from central banks, which continue to diversify into gold," said UBS analyst Giovanni Staunovo. [GOL/AS]
Silver rose 1% to $23.45 per ounce, platinum fell 0.7% to $932.61 and palladium gained 1.1% to $1,273.70.
(Reporting by Ashitha Shivaprasad and Harshit Verma in Bengaluru;Editing by Mark Potter and Shweta Agarwal)