Gold prices soared on Thursday amid increase in demand from jewellers and fading expectations over interest rate by the US central bank.

The yellow metal prices rose Rs 275 to Rs 26,600 per ten grams in the bullion market, rebounding from losses witnessed in the two previous sessions.

Jewellers stepped up buying gold ahead of the festival and wedding seasons, lending support to the metal's prices.

Besides, the precious metal's prices are supported by data in the US that showed a fall in consumer prices in the country, easing concerns over a rate hike by the US Federal Reserve today.

"Today's FOMC meeting is one with forecasts' update and press brief, a good opportunity for policy change. Necessary conditions are not always sufficient, and we do not expect the Fed to change its policy stance," BNP Paribas said in a note.

In the international markets too, gold prices traded higher on the back of fading expectations over Fed rate hike.

Core inflation in the US remained unchanged at 1.8% in August.

"The still low inflation rate is one argument for the doves at the US Federal Reserve not to raise interest rates at today's meeting," said Commerzbank Corporates & Markets in a note.

"August's financial turmoil is not the reason why. Admittedly, jittery financial markets reminded Fed officials that policy decisions can have huge impacts. This is the reason for the Fed to try and be crystal-clear about future steps, not to postpone decisions otherwise seen as necessary," BNP Paribas added.

Silver prices also gained sharply by 1,000 to Rs 35,700 per kg due to improved demand from industrial units and coin makers.