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Gold advances as investors weigh outlook for US interest rates

[SINGAPORE] Gold climbed as investors weighed the outlook for 2016, including the pace at which the Federal Reserve may raise US interest rates.

Bullion for immediate delivery rose as much as 0.5 per cent to US$1,074.39 an ounce and traded at US$1,074.05 at 2:51 pM in Singapore, according to Bloomberg generic pricing. The metal is down 9.3 per cent this year against a gain in the US currency of 8.5 per cent.

Gold is heading for a third annual decline as expectations for tighter monetary policy in the US curb demand for the metal, which doesn't pay interest. While the Fed increased rates this month for the first time in almost a decade as the economy strengthened, Chair Janet Yellen has maintained that the pace of future moves will be gradual.

"At the moment, the Fed is projecting four hikes, while the market is pricing in two," Bernard Aw, a strategist at IG Asia Pte, said by e-mail. "The difference of two hikes is a big gap, and at some point it will narrow. How it will converge would be the focus for market sentiments, and by extension for gold."

While HSBC Holdings Plc predicts just two rate increases next year, Goldman Sachs Group is among banks that see four hikes. Marc Faber, the publisher of the Gloom, Boom & Doom Report, said the US is at the start of an economic recession and and US stocks will fall in 2016, clashing with Yellen's view that things are improving.

"One of the key variables for markets next year will be the extent of what happens to the US dollar and whether it strengthens or not, that's going to be very much about the outlook for how quick the Fed moves," Ric Spooner, chief analyst at CMC Markets in Sydney, said by phone on Tuesday.

Trading will be muted this week and prices will move within a range of US$1,060 to US$1,078 an ounce, according to Spooner.

Investors sold from gold-backed funds for a fifth straight day. Holdings in exchange-traded products fell to 1,465.6 metric tons on Monday, data compiled by Bloomberg show. Assets dropped to the lowest since February 2009 on Dec 17.