Spot gold fell 1.1% to $1,839.06 per ounce by 2:42 pm EDT (1842 GMT), having earlier hit its lowest level since May 14 at $1,833.65.
U.S. gold futures settled up 0.3% at $1,861.40
In its new projections, 11 out of 18 Fed officials projected at least two quarter-point interest rate increases for 2023, even as officials in their statement pledged to keep policy supportive for now to encourage an ongoing jobs recovery.
"The Fed has a gameplan that they're going to be a removing all this accommodation and it's just this initial knee jerk reaction (in gold)" said Edward Moya, senior market analyst at OANDA, adding that the Fed was more hawkish than markets expected and gold could fall further towards $1,830.
The central bank however held its benchmark short-term interest rate near zero and said it will continue to buy $120 billion in bonds each month to fuel the economic recovery.
Gold was further bruised by a jump in the dollar and yields after the announcement. Higher yields raise the opportunity cost of holding non-yielding bullion.
"But the Fed is not going to be leading the charge in tightening against other major central banks and it will be one of the last to tighten, allowing for dollar weakness to remain fully intact" which should support gold, Moya said.
Market participants are now keeping a close watch on Fed Chair Jerome Powell's news conference after the statement.
Powell said Fed policy would continue to deliver "powerful" support to economy and flagged concerns over the economic recovery. He also said inflation could turn out to be higher and more persistent than expected.
Silver rose 0.3% to $27.71 per ounce, while palladium rose 1.6% to $2,805.86 and platinum fell 1.6%, to $1,134.50.
(Reporting by Nakul Iyer in Bengaluru; Editing by Paul Simao/Richard Chang/Pravin Char)
By Nakul Iyer