Gold prices extended gains on Thursday after comments on future interest rate hikes by the U.S. Federal Reserve chair Jerome Powell sounded less hawkish than feared, dragging the dollar and Treasury yields lower.

Spot gold was up 0.1% at $1,735.77 per ounce, as of 0436 GMT, after rising 1% to a two-week high in the previous session.

U.S. gold futures rose 0.9% to $1,734.50. The U.S. central bank on Wednesday raised rates by three-quarters of a percentage point for the second straight meeting to combat soaring inflation.

Powell said another "unusually large" increase in interest rates may be appropriate at the September meeting, but the decision will be determined by the incoming economic data and it would not give forward guidance.

"Powell left the door slightly open to a review of the rate situation and provided some sort of light at the end of the tunnel that we're not going to be seeing increasing rates going into next year as well," said Edward Meir, an analyst with ED&F Man Capital Markets.

"That knocked the dollar and U.S. yields down causing the flurry we saw in gold. In the near-term, gold prices are expected to move higher with good chance of testing resistance between $1,780 to $1,800 over the next month."

The dollar fell 0.6% overnight and was languishing near a three-week low on Thursday, making greenback-denominated gold less expensive for other currency holders.

Benchmark U.S. Treasury yields fell to hover near two-month lows. Lower bond yields reduce the opportunity cost of holding non-interest bearing gold.

Meanwhile, a sharp fall in purchases by investors pulled global gold demand down 8% in the second quarter compared to the same period in 2021, the World Gold Council said.

Elsewhere, spot silver gained 0.5% to $19.22 per ounce, platinum rose 0.1% to $887.49, and palladium climbed 0.4% to $2,039.77.

(Reporting by Brijesh Patel in Bengaluru; Editing by Subhranshu Sahu, Uttaresh.V and Sherry Jacob-Phillips)