Gold hovered near three-week lows on Thursday as the U.S. dollar jumped on expectations the Federal Reserve could end its bond-buying programme this fall, hurting the metal's safe haven appeal as a hedge against inflation.
Although concerns about the Ukraine crisis could lend support, the bullion market was suffering from a lack of physical buying from top gold consumer China following a sharp drop in its currency.
Janet Yellen, speaking at her first news conference as the Fed chief after the close of the U.S. central bank's two-day policy meeting, said the central bank could start to raise interest rates around six months after its current asset purchase programme ends.
"Physical demand is still very quiet and slow. The market may recover and rally from here but the upside will be limited," said Peter Fung, head of dealing at Wing Fung Precious Metals in Hong Kong, who pegged resistance at $1,340 and $1,350 an ounce.
Gold could still fall back to about $1,300 an ounce, said Fung, adding that sentiment was mixed as a move by the Fed to reduce bond-buying could overshadow the impact from tensions in Ukraine.
Cash gold hit a low of $1,325.34 an ounce, its weakest since Feb. 28, and stood at $1,333.31 by 0346 GMT, up 0.19 percent on short-covering. It briefly rose to a six-month top of $1,391.76 on Monday on tensions in Ukraineand concerns about growth in China.
The United States warned Moscow it was on a "dark path" to isolation on Wednesday as Russian troops seized two Ukrainian naval bases, including a headquarters in the Crimean port of Sevastopol where they raised their flag.
U.S. gold for April delivery was at $1,334.00 an ounce, down 0.54 percent, having earlier hit $1,326.10, its lowest since the end of February.
The U.S. dollar was holding hefty gains in Asia on Thursday as investors wrestled with the risk that U.S. interest rates could rise sooner and faster than previously thought, pressuring stock and bond prices.
In the physical market, premiums for gold bars in Hong Kong were unchanged from last week at $1 an ounce to the spot London prices, and at 80 cents to $1 in Singapore.
Domestic gold prices in China remained at discounts to cash gold.
"I've noticed that demand from China has weakened after the Chinese New Year. Although there are imports, I don't think they reflect the real demand. It looks like buyers are just filling the import quotas," said a dealer inSingapore.
"We saw some buying this morning, but surprisingly the current price is not good enough to attract people to rush and buy physical gold. The picture is totally different from last year."
India has allowed five domestic private sector banks to import gold, in what industry officials say could be a significant step towards easing of tough curbs on the metal imposed last year to cut the country's trade deficit.