Investors also played their bets cautiously in view of India's rating outlook cut by Moody's investors Services last week.
At the interbank foreign exchange, the Indian currency opened lower at 71.26 and fell further to 71.33 to the US dollar. It finally settled at 71.28 a dollar, a dip of 31 paise over its previous close.
"Geo-political uncertainties emerging from the Middle East may continue to underpin gold prices going ahead to USD 1,650 an ounce in Comex markets and Rs 42,000 in MCX," Commtrendz Research co-founder and CEO Gnansekar Thiagarajan told PTI here.
During the reporting month, the Central bank had purchased $615 million and sold $4.687 billion in the spot market.
Markets were bombarded from all sides: denials and counter-denials on the state of US-China trade talks and the Brexit countdown, a Turkish military push into Syria and a blizzard of weak data stretching from Japan to France.
Against the yen, which tends to strengthen during times of geopolitical stress due to Japan's standing as the world's biggest creditor, the greenback was 0.29% higher at 107.38 yen.
Investors are now waiting for the ISM services report later in the day and Friday's employment report to confirm or quell recession worries.
The Dollar index has appreciated sharply in the past few months due to further escalation in the US-China trade war. Brexit drama is also adding to the turmoil.
The level of 72.90 is a crucial resistance for the USD/INR pair, break of which could push it to a new all-time high.
The RBI has shown a willingness to ease rates and so we expect another cut in August, an encouraging facet for the outlook of the Indian economy.
The Yuan has broken a key psychological level and unless the PBoC chooses the stability of capital markets over the pain in the real economy as a result of tariffs, moves lower in USD/CNH are likely to be short-lived.
After the Fed lowered its benchmark rate by 25 basis points, Chairman Jerome Powell said that the central bank's first rate cut in over a decade was "not the beginning of a long series of rate cuts."
The dollar clung to a two-month high against a basket of currencies in Asia after better-than-expected US GDP data last week enhanced its yield attraction against rival currencies.
Forex traders said rupee along with most Asian currencies were trading in the positive territory following dovish comments from both New York Fed President John Williams and Vice Chair Richard Clarida.
The IMF has been at odds with US President Donald Trump over his use of tariffs to resolve trade imbalances, but its assessment that the dollar is overvalued is likely to give Trump more fodder for his frequent complaints that dollar strength is hampering US exports.
At the Interbank Foreign Exchange, the rupee opened at 68.69 then fell to 68.80 against the US dollar, showing a decline of 9 paise over its previous closing.
A strengthening dollar against major currencies overseas and weak domestic equity market weighed on the local unit, forex traders said.
The Indian rupee opened higher by 17 paise on falling crude oil prices.
Polls for the European Parliament opened in the Netherlands and the UK, with 26 other members of the European Union to follow before it ends on May 26 night.
As of now the only concern for our domestic currency is boiling crude oil prices and current account deficit (CAD). But in recent scenario the main focus will be on election results.
In the near term the rupee might depreciate till 70.50 in the spot, according to Rushabh Maru of Anand Rathi.
Gold prices inched up on Thursday as the dollar eased and a rally in equities paused, while investors kept a close watch on Sino-U.S. trade talks.
Spot gold was up 0.1 percent at $1,293.15 per ounce by 0337 GMT, after touching its lowest since March 8 at $1,286.35 in the previous session.
The move in the rupee will be keenly watched ahead of RBI’s monetary policy meeting next week
Spot gold was up 0.2 percent at $1,296.08 per ounce as of 0403 GMT, while U.S. gold futures rose 0.4 percent to $1,295.90 an ounce.