By A. Ananthalakshmi
SINGAPORE (Reuters) - Gold nudged higher on Friday after dropping nearly 3 percent in the previous two days but sentiment remained fragile on rising expectations of an early end to U.S. monetary stimulus and on accelerating fund outflows.
The metal is headed for its first annual decline in 13 years as investors, buoyed by a recovering global economy, channel more money into riskier assets such as equities by pulling funds from safe-haven gold.
"It's very difficult to build any meaningful strength in the gold markets given continuing outflows from the ETFs," said Mark Keenan, head of commodities research for Asia at Societe Generale, referring to gold-backed exchange-traded funds (ETFs).
"Its pretty much been ETF flows that have driven the sentiment in price direction this year. There is very little in the way of factors that could pull gold prices higher," Keenan added.
Spot gold rose 0.3 percent to $1,227 an ounce by 0747 GMT. It fell more than 2 percent on Thursday to a low of $1,223.30. Silver slipped after a 4 percent drop overnight.
Holdings in SPDR Gold Trust, the biggest gold ETF, fell the most in nearly two months on Thursday. The fund has not seen inflows in more than a month, hinting that a substantial upside in prices is limited.
Gold price movements have been volatile this week, oscillating between losses following strong U.S. data and rallies from short-covering.
Data on Thursday showed a strong rise in U.S. retail sales in November, adding to signs of an improving economy that could prompt the Federal Reserve to begin cutting back its stimulus soon.
Traders expect a decision to roll back stimulus could come as early as the central bank's meeting next week.
"A strong employment market and turning of monetary policies would be the factors pushing gold downward," said Chen Min, a precious metals analyst at Jinrui Futures in Shenzhen, adding $1,210 could be a long-term support level for the metal.
Thursday's price fall brought back some Asian buyers, especially in China. Premiums on the Shanghai Gold Exchange for 99.99 percent purity gold picked up to $10 an ounce from $7 in the previous session.
(Editing by Himani Sarkar and Muralikumar Anantharaman)
