LONDON: Gold held below $1,300 an ounce on Thursday and was set for its second monthly drop in three as optimism over the U.S. economy curbed demand, offsetting a message from the Federal Reserve it is in no rush to raise interest rates. The U.S. central bank on Wednesday upgraded its assessment of the world's largest economy but reaffirmed a broadly relaxed stance on monetary policy. Data on Wednesday showed the April-June gross domestic product expanded at a 4.0 percent annualised rate as activity picked up. Spot gold was flat at $1,295.10 an ounce by 1021 GMT. It was headed for a 2.5 percent drop for the month, reversing a gain of around 6 percent in June, when international political tensions and the Fed's reiteration of its commitment to accommodative measures and low rates prompted investor buying. U.S. gold futures were also unchanged at $1,295.10 an ounce. "The biggest price move we had over the past couple of months was in reaction to (Fed Chair Janet) Yellen's comments on interest rates in mid-June, and it seems to me that the focus is now economic growth," Citi analyst David Wilson said. "But if you have strong economic growth and low interest rates, you at some point reach capacity constraints and then inflation rises," he added. "And if you are scared of inflation, you buy gold as the metal is seen as an hedge against it." The dollar traded just below a 10-month high against a basket of currencies, with investors awaiting more data including weekly jobless claims scheduled later on Thursday. The main focus will be the U.S. non-farm payrolls data due on Friday, which is expected to show that U.S. employers added 233,000 new jobs in July. "Yesterday's FOMC outcome had limited impact on gold, as the policy outlook remained in place for now, but a changing economic outlook should eventually weigh on gold as it leads to a less-dovish shift in policy," UBS said in a note. "Developments in the U.S. labour market will be the key factor for Fed policy up ahead. This suggests that gold market participants will be focusing on employment data more than ever." Gold has traded in a tight range over the past few weeks, mostly between $1,295 and $1,310 an ounce, as the negative impact of a stronger dollar and improving U.S. economic conditions has been offset investor risk aversion due to international political conflicts in Ukraine and the Middle East. Israeli shelling killed at least 15 Palestinians sheltering in a U.N.-run school and another 17 near a street market on Wednesday, with no ceasefire in sight after more than three weeks of fighting. Russia fought back over new U.S. and EU sanctions imposed over Ukraine even as G7 leaders warned of further steps, while Ukraine's government accused pro-Russia rebels of placing land mines near the site of a crashed Malaysian airliner to prevent a proper investigation. Among other precious metals, spot silver was up 0.4 percent at $20.67 an ounce. Platinum stood unchanged at $1,473.49 an ounce, while palladium rose 0.3 percent to $878.25 an ounce.

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