Gold prices fell overnight, giving up earlier gains, after the US Federal Reserve raised interest rates and noted that ‘some’ further gradual rate hikes would be needed next year.

The central bank, after the end of its last policy meeting of the year, said the US economy has been growing at a strong rate and the job market has continued to improve.

Fresh economic forecasts released on Wednesday showed policymakers expect two rate hikes next year and one the following year.

Gold fell 0.5 per cent $US1,242.84.

The metal earlier hit $US1,258.03, its highest since July 10.

US gold futures fell 0.3 per cent to $US1,249.40 an ounce.

‘The U.S. Federal Reserve has gone ahead and raised interest rates, which is a temporary pullback for gold,’ said George Gero, managing director at RBC Wealth Management.

‘The outlook for two rate hikes next year is not dovish enough, gold will be a little bit range-bound lower until we see what the effects will be from the budget, the politics, Washington, Brexit and other usual worries.’

The dollar pared some losses after the Fed statement as investors had earlier bet the Federal Reserve would signal a slower pace of interest rate hikes next year as it grapples with financial market volatility and potential slowdowns in major economies around the world.

A Reuters poll earlier showed risks of a US recession in the next two years rising to 40 per cent, inducing a significant shift in expectations that the Fed will introduce fewer interest rate hikes next year.

Meanwhile, holdings of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund rose 1.1 per cent to 771.79 tonnes on Tuesday, the highest since August 20.

Palladium hit a record high of $US1,283.49 earlier in the session.

‘The ability of the market to come back after selloffs reaffirms its underlying tight fundamentals and we expect palladium will move higher after the FOMC (Federal Open Market Committee meeting) is out of the way,’ HSBC analyst James Steel wrote in a note on December 18.

Silver gained 0.1 per cent to $US14.65, while platinum rose by nearly a percent to $US791 an ounce.