Gold hit its highest in three weeks on Thursday as uncertainty about potential US Federal Reserve stimulus reduction kept the dollar under pressure, while holdings in the world's top gold-backed exchange traded fund (ETFs) rose.

Spot gold gained 0.2 per cent to $1,338.25 an ounce by 1027 GMT, having earlier hit $1,345.09 -- its highest since July 24.

The dollar fell 0.2 per cent versus a basket of currencies after St Louis Fed president James Bullard said he had not yet made up his mind on whether next month's policy meeting would be too soon to curb quantitative easing.

An early end to the Fed's $85 billion worth monthly bond buying is expected to boost US Treasury yields, which should support the dollar, but could also hurt assets such as gold that had been boosted by central bank liquidity.

Encouraged by uncertainty over timing of the Fed's bond tapering, traders shrugged off tighter import rules in India and outflows from other gold ETFs, pushing up prices for a sixth session out of seven on the prospect of rising demand from investors and physical buyers.

"What the market is trying to think is whether these recent gains can be sustained. We are entering the second half of August which is not going to be a major period for economic data or news," said Macquarie analyst Matt Turner.

"The ETF holdings have stabilised - probably a precondition of a stronger price. But the main driver is still going to be Fed tapering policy change," he added.

Outflows from the eight biggest gold ETFs tracked by Reuters have totalled nearly 20 million ounces, or $27 billion, so far this year. Rare inflows tend to boost market sentiment.

Holdings of SPDR Gold Trust rose for the first time since June 10 last Friday and had remained unchanged before rising 0.23 per cent to 913.23 tonnes on Wednesday, raising hopes that the worst of outflows from the fund is over.

PAULSON CUTS

Quarterly reports from top US hedge funds showed that many had reduced, and in some cases completely disposed of, their stakes in SPDR amid a sharp drop in prices this year. Longtime bull John Paulson halved his stake in SPDR.

Physical demand, however, seemed to be picking up with the recent stabilisation in prices bringing back buyers.

Demand in India and China could each cross 1,000 tonnes this year, the World Gold Council said on Thursday. It also said overall gold demand fell 12 per cent in the second quarter due to the outflows from ETFs.

Silver was up almost 1 per cent at $22.02 an ounce, having hit a one-month high, as holdings in the world's largest silver-backed exchange-traded fund, iShares Silver Trust, rose to a four-month high.

Platinum rose to its highest in more than two months, and was last trading around $1,512 an ounce, while palladium hit its highest since late July, $749.72 an ounce. - Reuters