Spot gold was down 0.3% at $1,777.13 per ounce, as of 0443 GMT. U.S. gold futures fell 0.4% to $1,778.00.
In congressional testimony on Wednesday, Fed Chair Jerome Powell said the central bank needs to be ready to respond to the possibility that inflation may not recede in the second half of 2022.
Powell also said the Fed would consider a faster tapering of its bond purchases at its upcoming two-day meeting due to start on Dec. 14.
Gold is often considered an inflation hedge, though reduced stimulus and interest rate hikes push government bond yields up, translating into a higher opportunity cost for holding bullion, which pays no interest.
"The more hawkish shift in rhetoric from Powell really seems to be overshadowing for gold any bullish December seasonality factors and any bullish Impulse from the Omicron virus," said Stephen Innes, managing partner at SPI Asset Management.
Investors' now eye Friday's U.S. non-farm payrolls report, which could influence the Fed's rate stance. The ADP National employment report showed on Wednesday private payrolls increased by 534,000 jobs in November.
Indicative of sentiment, SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, said its holdings fell 0.2% to 990.82 tonnes on Wednesday from Tuesday.
Spot silver rose 0.3% to $22.38 an ounce and platinum gained 0.8% to $941.19.
Palladium increased 0.8% to $1,761.33. But the metal has failed to recover from last week's steep sell-off and continued to trade below gold for the first time since August, 2019.
"Palladium's industrial use is getting weighed down because we're not getting big demand from automobiles and that's feeding into speculative fervour," SPI's Innes said.
(Reporting by Nakul Iyer in Bengaluru; Editing by Rashmi Aich and Sherry Jacob-Phillips)
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