Spot gold traded near a one-week high on Thursday after the US Federal Reserve surprised markets by postponing a wind-down of its commodities-friendly monetary stimulus and the dollar tumbled to seven-month lows.
US gold futures jumped as much as 4.6% on the decision, while silver futures gained 7%, tracking spot prices' gains from the previous session.
The absence of key buyer China, which is closed for the Mid-Autumn Festival holiday, kept gains in check.
Fed chairman Ben Bernanke on Wednesday refused to commit to begin reducing its bond purchases this year, and instead went out of his way to stress the program was "not on a preset course". In June he had said the Fed expected to cut back before year end.
Many economists had expected a $10 billion reduction to the bank's $85 billion monthly bond purchases.
"It's quite surprising given what they have said before. That's why there is a big impact on precious metals," said Dick Poon, general manager of refiner and dealer Heraeus Metals in Hong Kong. "But I don't see a strong rally as there is not much demand."
Traders said though there were chances of a short-covering rally because of the Fed's turnaround, they were not very optimistic about a sustained rise in prices.
Gold, often seen as an inflation-hedge and safe-haven investment, has fallen nearly 20% this year on fears of an end to easy central bank money that had propelled it to record highs in 2011.
After the Fed said it would stick to its stimulus plan for now, gold gained more than 4% or about $55 an ounce on Wednesday, leading the rally in commodities.
Spot gold eased 0.2% to $1,362.24 an ounce by 0623 GMT after earlier hitting $1,367.86, its highest since September 11.
US stocks rallied to record highs after the Fed's decision, while the dollar and bond yields tumbled.
"With the decision for no taper for now, markets will revert back to data-watching, but odds still remain (albeit more muted) for a taper before year-end, data-willing of course," OCBC Bank said in a note.
The outlook for demand in India and China during the peak season that begins later this month is also weighing on gold prices.
Volatility in prices is keeping buyers away in China, while in India government restrictions on imports are curbing supply.
India's gold imports could be 750 tonnes in the current fiscal year ending March 31, 2014, a government official said, down 11% from last year as official measures curb purchases in what has been the world's biggest bullion buyer.