The metal was under pressure after data showed U.S. consumer spending recorded its largest gain in more than 4-1/2 years in March and factory activity accelerated last month, strengthening views the economy was regaining steam.

Gold had briefly risen above $1,300 an ounce on Monday on escalating tensions in Ukraine, and as bullion investors had hoped the U.S. central bank would slow tapering bond purchases.

On Wednesday, the Fed said the economy "will expand at a moderate pace and labor market conditions will continue to improve gradually," an assessment that tracked its statement last month.

"The failure to build any momentum after we came back to the $1,300 level triggered technical selling," said Bill O'Neill, partner at New Jersey commodities investment firm LOGIC Advisors.

"Gold has failed to attract any flight to safety, and the ETF liquidation is a very big negative," he said.

Spot gold was down 0.9 percent at $1,279.24 an ounce at 2:31 p.m. EDT (1831 GMT), having touched a one-week low of $1,277.09.

U.S. Comex gold futures for June delivery settled down $12.50 an ounce at $1,283.40, with trading volume at 120,000 lots, largely in line with its 30-day average, preliminary Reuters data showed.

In a separate U.S. economic report, jobless claims unexpectedly rose in the latest week, though the underlying trend continued to point to improving labor market conditions.

Gold investment demand remained weak. Holdings in the SPDR Gold Trust, the world's largest gold-backed ETF, fell 4.19 metric tons to 787.95 tonnes on Wednesday, its biggest outflow since April 16.

SLUGGISH INTEREST

U.S. physical demand, however, showed signs of improving. American Eagle gold bullion coin sales in April recovered from a seven-month low in March as retail buying picked up, while early interest in newly launched platinum coins slackened after strong buying in the first month they were available.

Among other precious metals, silver was down 0.5 percent at $19.01 an ounce.

The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, hit its highest since August 2010 on Thursday near 68, putting silver at its cheapest versus gold in more than 3-1/2 years.

Platinum was down 0.1 percent at $1,420.13 an ounce, while palladium was the only gainer in the precious metals complex, rising 0.4 percent to $810.50 an ounce.