After New York gold futures had closed, the Fed held the benchmark U.S. federal funds rate at 5.25 percent and said any more firming depends on the evolution of the outlook on inflation and economic growth.
Rate hikes often lift the dollar and weigh on gold.
Spot gold dropped to as low as $572.30 an ounce -- not far above a near three-month low of $571.20 an ounce hit on Friday. It was quoted at $580.10/581.10 in New York, against $576.70/8.20 late on Tuesday, when it fell more than 1 percent on fund selling.
A trader in New York said many market players had been surprised by gold's rally at the start of U.S. business.
"I think everyone was expecting gold to trade lower, because copper was down 10 cents and crude oil was down $1 almost when we came in this morning.
"On the opening, someone just pushed it higher and then there was a lot of short covering and that's where the rally came from," he said, adding that a stronger euro in the afternoon also helped prop up the market.
Traders retained a cautious stance, however, predicting the metal was vulnerable to further declines in the days ahead.
"I still see a downside but I don't think it's the start of a bear run. It's just a correction. Certainly metals will recover toward the end of the month," Tony Dobra, a director at Standard Chartered Bank, said.
"We have come down a lot but we are still way above where we started the year," he said, referring to a price level of $517 in early January.
Traders said gold was under pressure due to oil, which slid to fresh six-month lows at $60 a barrel, seemingly removing more investment demand for gold as a hedge against inflation. Prices have retreated from a July record high of $78.40 in the steepest decline for 15 years.
The unwinding of positions linked to billion-dollar losses at a prominent U.S.-based hedge fund, Amaranth Advisors LLC, may also be contributing to the slump in oil prices, and kept some traders fearful of a knock-on effect on precious metals.
"Until this Amaranth thing is cleared up, I still think the pressure could be on the down side, because the institutional people that were thinking about investing in commodities may take a different look here and say, 'Well, look what happens to these hedge funds, these are very significant losses here,'" a New Jersey-based trader said.
Additionally, funds may liquidate more positions in what they consider risky markets as the end of the quarter nears, he added.
"If oil trickles down further, gold can come down again. People are a bit wary about going too long here at the moment, but longer term I am still fairly friendly toward gold," said a precious metals dealer in London.
In other precious metals, silver
Platinum fell to $1,225.50 an ounce, its lowest level since June 20, and was last quoted at $1,138/1,143, against $1,150/1,155. Palladium slipped to $306/311 an ounce from $312.50/317.50 previously.
