Gold prices slipped on Thursday as a firmer dollar took the sheen of the greenback-priced metal, with mounting concerns over the U.S. Federal Reserve's aggressive monetary policy and impending rate hikes denting sentiment further.

Spot gold fell 0.7% to $1,648.39 per ounce by 10:40 a.m. EDT (1440 GMT), having marked its best day since March on Wednesday.

U.S. gold futures fell 0.8% to $1,657.10.

"Gold’s weaker as the dollar rally resumes ... we've gotten another round of economic data and it still supports the argument that the Fed could remain very aggressive with the tightening of policy," said Edward Moya, senior analyst with OANDA.

Gold prices had extended losses after data showed gross domestic product in the U.S. fell at an unrevised 0.6% annualized rate in the second quarter, compared with a 1.6% contraction in the first quarter.

The dollar gained 0.2%, making bullion more expensive for overseas buyers.

"After a brief period of relief, recovery in the USD and increasing yields have started to weigh on precious metals once again," TD Securities said in a note.

Investors also took stock of U.S. data that showed initial claims for state unemployment benefits dropped to 193,000, versus expectations of 215,000 applications for the latest week.

This week, several Fed officials reiterated the U.S. central bank's commitment to raise interest rates aggressively to battle surging inflation.

Even though gold is seen as a hedge against inflation and economic uncertainty, investors have lately preferred the safety of the dollar and Treasuries in a high interest rate environment. Rising rates increase the opportunity cost of holding gold, which does not pay any interest.

"You're probably looking at a gold market that's still going to react to everything about the dollar, everything about Fed expectations," Moya said.

Meanwhile, spot silver shed 2% to $18.52 per ounce.

Platinum dropped 0.5% to $859.11, while palladium rose 2.2% to $2,202.86.

(Reporting by Kavya Guduru in Bengaluru; Editing by Vinay Dwivedi)