Picture used for illustrative purpose. File

Gold retreated on Thursday, following a sharp rise in the last session, as investors squared positions to focus on whether U.S. Federal Reserve Chairman Jerome Powell signals a change in monetary strategy.

Spot gold was down 0.8% to $1,938.32 per ounce by 622 GMT, after rising 1.3% on Wednesday. U.S. gold futures eased 0.3% to $1,946.70 per ounce.

"It was a pretty significant rally overnight on pretty limited news. The thinner Asian trading session has seen punters pull profits," said IG Markets analyst Kyle Rodda.

"Gold bulls will be hoping, in a way, that the stars align a bit: that Powell outlines the Fed's pivot to inflation targeting, and expresses an openness to keep long term rates low, ideally through a new yield-curve control program."

Powell is set to address the Fed's annual central bankers' conference at 1310 GMT, with investors looking for cues on inflation and monetary strategy. 

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The Fed has slashed interest rates to near zero and rolled out unprecedented stimulus to revive the coronavirus-hit economy, contributing to gold's over 27% climb so far this year.

Lower interest rates decrease the opportunity cost of holding non-yielding bullion and weigh on the dollar, making gold cheaper for investors holding other currencies.

"Gold should find willing buyers on dips to $1,935 an ounce. Overall, we expect gold to trade in a choppy $1,935-$1,970 range ahead of Powell's speech," said Jeffrey Halley, a senior market analyst at OANDA.

The dollar index touched a near one-week low, while caution crept into global equities markets on fears of fresh U.S.-China tensions after Washington blacklisted

24 Chinese companies and Beijing reportedly test fired missiles into the South China Sea.

Elsewhere, silver dropped 1.5% to $27.12 per ounce. and palladium dipped by 1.1% to $2,172.93 and platinum fell 0.2% to $926.59. 

Reuters