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

Gold climbed for a third day as North Korea's first nuclear test in almost three years spurred demand for haven assets amid concern China's slowdown is deepening.

[LONDON] Gold fell 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 10 per cent of its value this year, largely on concerns that higher US interest rates would hurt demand for the non-yielding asset.

Spot gold dipped 0.8 per cent to US$1,060.10 an ounce by 2:38 p.m. EST (1938) GMT, while US gold futures settled down US$8.20 an ounce at US$1,059.80. Trading volumes were muted in the holiday-shortened week.

The rest of the precious metals complex also dropped, with platinum down 2 per cent at US$869.51 an ounce after hitting a two-week low of US$850.50 an ounce, having fallen through a technical support level around US$860.

"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 US$1,045 and US$1,050, and resistance stands at US$1,085/US$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 0.05 per cent against a basket of currencies and was heading for a 10 per cent yearly increase, making gold more expensive for foreign currency holders.

Following the US 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.

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

Brent crude oil retreated towards 11-year lows on Wednesday as Saudi Arabia's oil minister made it clear the kingdom had no plans to scale back its output.

Investor interest in gold 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 1per cent to US$13.81 an ounce, on track for a 12 per cent yearly fall, while palladium lost 2 per cent to US$543.50 an ounce. The metal was heading for the first yearly loss in four years, down nearly 30 per cent.