Gold treads water as dollar firms; poised for 3rd annual loss

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold was little changed on Wednesday as thin liquidity and a firmer dollar capped price moves, although the metal remained on track to close the year lower for a third time in a row.

The precious metal has lost nearly 10 percent of its value this year, largely on fears that higher U.S. interest rates would hurt demand for non-interest-paying bullion.

Spot gold was steady at $1,069.40 an ounce by 0109 GMT, following a flat close overnight.

Limited trading volume and market-moving data in the holiday-shortened week will keep things quiet, though gold could take cues from the oil and currency markets, traders said.

Gold is positively co-related to oil as the metal is often seen as a hedge against oil-led inflation, while a stronger greenback makes dollar-denominated gold more expensive for holders of other currencies.

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

In the currency market, the dollar rose to nearly a one-week high against a basket of six currencies on Tuesday from a near two-week low hit earlier in the session. It continued to climb on Wednesday.

The dollar is expected to stay firm following the U.S. Federal Reserve's move to hike rates for the first time in nearly a decade this month and indications the central bank would resort to gradual increases in 2016.

The outlook for gold does not look very bullish heading into the next year, with several traders and brokerages predicting a drop in prices to $1,000 or below early in 2016.

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.

(Reporting by A. Ananthalakshmi; Editing by Himani Sarkar)