By Clara Denina
LONDON (Reuters) - Gold rose on Monday, as uncertainty about how fast the Federal Reserve will tighten interest rates next year weighed on the dollar.
Stronger European shares and a renewed slump in crude oil, which hit levels unseen since 2004, curbed gold's ascent. [O/R] [MKTS/GLOB] The metal is usually seen as a hedge against oil-led inflation, while appetite for risk keeps demand for safer assets such as gold limited.
Spot gold > was up 0.2 percent at $1,067.72 an ounce by 1314 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 Friday after the dollar slipped against the yen on views the Bank of Japan may not ease policy as much as expected. [FRX/]
However, the outlook for the dollar remains constructive on higher U.S. rates.
"The dollar will continue to be a drag for gold next year and more importantly the U.S. real rates and equity risk premium will help drive gold lower," Deutsche Bank analyst Michael Hsueh said.
"We have a view that we'll get 3 to 4 25-basis point U.S. 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 U.S. Treasury yield > steadied at 2.2 percent. As gold pays no interest, the rise in returns from U.S. 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 U.S. 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, U.S. Commodity Futures Trading Commission data showed on Friday, a factor that could trigger some short-covering.
"We believe the pace of U.S. rate hikes will decide the fate of gold," ANZ said in a note.
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
Total holdings had fallen to a seven-year low last week.
Silver > rose 0.2 percent to $14.11 an ounce, while palladium > was unchanged at $557.76 an ounce and platinum > gained 0.8 percent to $865.30.
(Additional reporting by A. Ananthalakshmi in Singapore; editing by Louise Heavens and David Evans)
