Gold rose almost 1 percent on Monday as weaker than expected US data and uncertainty about how fast the Federal Reserve will tighten interest rates next year weighed on the dollar. A renewed slump in crude oil to its lowest levels since 2004 was seen as curbing gold's ascent in the near term. The metal is usually seen as a hedge against oil-led inflation.
Spot gold rose 0.9 percent to $1,075.36 an ounce by 1428 GMT, following a 1.4 percent gain on Friday. Liquidity is expected to drop as trading enters the last two weeks of the year. The metal saw bids on Monday as the dollar fell after data from the Chicago Federal Reserve suggested that the US economy grew at a below average pace in November before the US central bank raised interest rates last week.
"We understand the bearishness before the start of the interest rate hiking cycle," Commerzbank analyst Eugen Weinberg said, adding that the metal was unlikely to fall further in the short term as the first rate rise was out of the way. However, the outlook for the dollar remains strong on higher US rates.
"The dollar will continue to be a drag for gold next year," Deutsche Bank analyst Michael Hsueh said. "We have a view that we'll get 3 to 4 25-basis point US rate hikes in 2016, bringing the 10-year real rate lower, although ... the yield curve is expected to ease a bit, but still not making it easy for gold," he added. "We are targeting $980 for the fourth quarter next year."
The benchmark 10-year US Treasury yield steadied at 2.2 percent. As gold pays no interest, the rise in returns from US bonds and other markets is seen as negative for the metal. Gold had fallen 2 percent on Thursday, the metal's biggest single-day loss in five months, as the Fed raised US interest rates for the first time in nearly a decade. In the run up to the move, speculators built a record bearish bet in COMEX gold, US Commodity Futures Trading Commission data showed on Friday, a factor that could trigger some short-covering.
The metal could revisit $1,000 for the first time in six years if it breaks below its early December low at $1,045, according to technical analysts. Assets in SPDR Gold Trust, the top gold-backed exchange-traded fund, rose 2.98 percent to 648.92 tonnes on Friday, the first increase in two months. Total holdings had fallen to a seven-year low last week. Silver rose 1.2 percent to $14.24 an ounce, while palladium dropped 0.3 percent to $553.47 and platinum gained 2 percent to $870.99.
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