Gold prices bounced back from a three-week low on Thursday, driven by a weaker dollar and anticipation of the U.S. Federal Reserve's interest rate decision later in the day. Spot gold climbed 1.5% to $2,698.39 per ounce as of 12:35 p.m. EST (1735 GMT). Meanwhile, U.S. gold futures increased by 1% to $2,706.00.

The dollar index had surged to a four-month high following Republican former President Donald Trump's victory in Tuesday's presidential election, but it reversed course on Thursday, dropping about 0.7%. A stronger dollar typically makes gold less appealing to overseas buyers.

"The market is keenly watching the Fed decision today, possibly also considering the Bank of England's decision to cut rates by another 25 basis points," commented Peter Grant, vice president and senior metals strategist at Zaner Metals. The Bank of England reduced interest rates on Thursday but indicated that the new government's first budget could lead to higher inflation and economic growth.

The Fed's rate decision is scheduled for 2 p.m. EST (1900 GMT). Market expectations are high for a 25-basis-point reduction. Fed Chair Jerome Powell is set to hold a press conference approximately half an hour after the policy statement is released.

The Fed initiated its policy easing cycle with an unusually large half-percentage-point rate cut in September. With Trump's imminent return to power, "any future rate reductions might be more challenging due to worries that higher prices and persistent inflation could force central banks to maintain restrictive policies longer than desired," noted Michael Hewson, chief market analyst at CMC Markets, in a report.

Gold is commonly seen as a hedge against inflation, but rising interest rates reduce its appeal since it is a non-yielding asset. Official data shows that China's central bank did not purchase gold for its reserves for the sixth consecutive month in October.

In other metals, spot silver rose 1.9% to $31.77 per ounce, platinum increased 0.5% to $991.09, and palladium fell 1.2% to $1,022.22.

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