Gold down on dollar and weak oil, heads for third annual loss

By Clara Denina

LONDON (Reuters) - Gold inched lower on Wednesday, as the combination of a firm dollar and weak oil prices left the metal on track for its third consecutive annual loss.

Bullion has lost almost 10 percent of its value this year, largely on concerns that higher U.S. interest rates would hurt demand for the non-yielding asset.

Spot gold was down 0.2 percent at $1,067.01 an ounce by 1044 GMT. Trading volumes were muted in the holiday-shortened week.

"Physical demand in gold continues to be relatively aggressive in the Far East compared with October and November, and on that basis gold should be much higher, but there seems to be this pressure from the dollar, which continues to put a lid on the price," MKS SA head of trading Afshin Nabavi said.

"It looks like support is at $1,045 and $1,050, and resistance stands at $1,085/$1,095."

With little market-moving data due this week, bullion traders will rely on cues from the currency and oil markets, analysts said.

The dollar was up 0.1 percent against a basket of six currencies and was heading for a 10 percent yearly increase, making gold more expensive for foreign currency holders.

Following the U.S. Federal Reserve's move to raise interest rates for the first time in nearly a decade this month and indications that the central bank would resort to gradual increases in 2016, the outlook for gold does not look bullish.

Several traders and brokerages predict a drop in prices to $1,000 or even lower early in 2016.

Gold typically follows oil as the metal is often seen as a hedge against oil-led inflation.

Oil prices fell more than 1 percent on Wednesday after jumping 3 percent in the previous session.

Investor interest remained absent, with assets of SPDR Gold Trust, the top gold-backed exchange-traded fund, still near a seven-year low. Speculative short positions on COMEX gold contracts are close to an all-time high.

Silver fell 0.5 percent to $13.83 an ounce, on track for an 11 percent yearly fall. Palladium gained 0.3 percent to $558.21 an ounce and platinum fell 0.3 percent to $885.80 an ounce.

(Additional reporting by A. Ananthalakshmi in Singapore; Editing by Louise Heavens)