Gold poised for third annual loss; 2016 outlook bleak

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold was little changed on the last trading session of the year, but looked set to post its third straight annual loss, undermined by a robust dollar and prospects of higher U.S. interest rates.

Investors have sold off the metal, down about 10 percent for the year, on fears that higher U.S. interest rates would dent the appeal of non-interest-paying bullion.

Other precious metals have also been hit by the strength in the dollar and slump in gold, and were headed for sharp annual declines.

Spot gold edged up 0.1 percent to $1,062.20 an ounce by 0645 GMT on Thursday. Volumes were thin ahead of the new year holiday on Friday.

It slid to a near-six-year low of $1,045.85 earlier in December.

"Next year too gold will be lower as U.S. interest rates will keep going higher," said a bullion trader in Hong Kong, adding that this will put pressure on other precious metals as well.

Gold could drop to $1,000 or below but could recover slightly in the second half of the year, he said.

The outlook for the metal does not look bullish heading into the next year.

Gold prices have been influenced a great deal by U.S. monetary policy. The Federal Reserve increased U.S. interest rates for the first time in nearly a decade in December, and is expected to hike rates at a gradual pace in 2016.

That could support the dollar, which is on track to gain 9 percent this year against a basket of major currencies.

A stronger greenback makes dollar-denominated gold more expensive for holders of other currencies.

Other fundamentals were also not supportive of an uptick in prices.

Assets of SPDR Gold Trust, the top gold-backed exchange-traded fund, are near a seven-year low, while short positions on COMEX gold contracts are close to an all-time high.

A bearish outlook for oil could pile more pressure on gold. Gold is positively co-related to oil as the metal is often seen as a hedge against oil-led inflation.

"As the Fed's path to normalisation in its monetary policy becomes clearer as we venture into 2016, we may see some stabilisation in gold and silver with an eventual move higher into H2 2016," said Alex Thorndike, senior precious metals dealer at MKS Group.

"In the shorter term however things could deteriorate further," he said.

Among other precious metals, silver looked set to end the year down about 11 percent.

Platinum was headed for a 27 percent decline, its worst annual performance since 2008.

With a 31 percent drop, palladium was the worst performer among precious metals.

(Reporting by A. Ananthalakshmi; Editing by Sunil Nair)