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Gold prices edged up on Wednesday, as a rally in U.S bond yields paused, but gains were limited by sustained strength in the dollar and impending aggressive monetary policy decisions.

Spot gold was up 0.2% to $1,704.60 per ounce at 09:47 GMT, having dropped to its lowest since Sept. 1 at $1,690.10.

U.S. gold futures gained 0.2% to $1,716.80.

Benchmark 10-year U.S. Treasury yields slipped, lowering the opportunity cost of holding zero-yield bullion. [US/]

There might be some buying activity below $1,700, but as long as the U.S. Federal Reserve sticks to its hawkish tone, expect gold prices to fall further, said UBS analyst Giovanni Staunovo.

Higher interest rates lower gold's appeal.

A stronger dollar, supported by rising U.S. interest rates is not helping gold, Staunovo said, adding: "(I) don't see the European Central Bank influencing gold directly, more indirectly via the FX (foreign exchange) rate."

The ECB is this week expected to deliver a second big rate hike to tame record-high inflation just as a halt in supplies from a major Russian gas pipeline fans further inflation and recession fears in Europe.

The Fed is largely expected to deliver a 75 basis point rate increase later this month. The U.S. central bank has raised its benchmark overnight interest rate by 225 basis points in total since March to fight soaring inflation.

The U.S. dollar scaled a fresh 20-year peak, making greenback-priced gold less attractive for overseas buyers. [USD/]

"It is hard to see how gold can make any gains given such a hawkish environment, yet there clearly remains some underlying support for the metal that is at least enabling it to hold around the key threshold of $1,700," Rupert Rowling, market analyst at Kinesis Money, said in a note.