By Clara Denina
LONDON (Reuters) - Gold edged up on Tuesday in response to a flat dollar and slightly firmer oil prices, but the metal is heading for its third consecutive year of losses on prospects of rising U.S. interest rates.
Gold is likely to end 2015 down nearly 10 percent, mostly due to expectations that higher U.S. interest rates will hit demand for the non-interest-paying metal.
Spot gold rose 0.2 percent to $1,070.50 an ounce by 1245 GMT, after losing 0.6 percent in the previous session. Volumes were thin in the last trading week of the year.
"Over the short-term, the precious metal will likely trend sideways, as funds look to close out the year and contemplate heading into next year with a fresh slate," INTL FCStone analyst Edward Meir said.
The dollar was 0.1 percent up against a basket of leading currencies, ahead of U.S. house price and consumer confidence data.
The U.S. currency will continue to be the main driver for gold and its performance going forward, analysts said.
Aided by an improving U.S. economy, the Federal Reserve raised rates for the first time in nearly a decade this month and hinted at gradual increases in 2016.
"Gold's downtrend is likely to continue throughout 2016... there are going to be more U.S. rate hikes than the market is anticipating the next year," ABN Amro analyst Georgette Boele said.
The metal dropped on Monday, when crude oil fell more than 3 percent.
"Gold is seen as an inflation hedge and lower oil prices give investors fewer reasons to buy gold," ABN Amro's Boele said.
Global benchmark Brent crude steadied above 11-year lows but gains could be undermined by the impact of near record output.
Assets of SPDR Gold Trust, the top gold-backed exchange-traded fund, fell 0.18 percent to 643.56 tonnes on Monday, close to a seven-year low.
Speculators' short positions in COMEX gold contracts are near an all-time high, though data on Monday showed they had reduced the record bearish stance in the week to Dec. 22.
The technical picture also looked weak.
A breach of $1,067 an ounce could send the metal all the way to a multi-year low of $1,048, ScotiaMocatta said in a note.
"December has been a sideways move for the metal with a series of lower tops. Risk remains lower, we do not see stop loss buying of the metal until a break of $1,081 and $1,088," it said.
Silver rose 0.5 percent to $13.98 an ounce, but was heading for an 11 percent yearly fall, while both palladium and platinum gained 0.7 percent to $554.25 an ounce and $885 an ounce respectively.
(Additional reporting by A. Ananthalakshmi in Singapore; Editing by Jane Merriman and William Hardy)
