(Updates prices)
By A. Ananthalakshmi
SINGAPORE, Dec 23 (Reuters) - Gold inched up on Wednesday, taking cues from a rebound in oil prices and a softer dollar as the metal drifted in a tight range in thin pre-holiday trade.
Spot gold XAU= rose 0.3 percent to $1,074.98 an ounce by 0643 GMT. The metal had eased 0.6 percent on Tuesday, snapping a two-day rally.
Oil prices stabilized after plumbing 11-year lows earlier in the week. Gold is positively correlated to oil as the metal is seen as a hedge against oil-led inflation. O/R
Gold has recovered from the losses that followed last week's move by the Federal Reserve to raise interest rates for the first time in nearly a decade, largely on short covering.
But the outlook for bullion remains bearish, with the Fed set to hike rates further next year and energy markets poised for more declines.
"The Fed would be quite keen to continue monetary policy tightening, albeit only gradually over 2016, followed by a faster pace in the following years," Societe Generale (PA:SOGN) said in a note late on Tuesday, adding that this would strengthen the dollar and hurt gold.
Low inflationary pressures in the Unites States and elsewhere, due to depressed energy prices, will also limit interest in gold, Societe Generale said.
Investor sentiment towards gold remains bearish. Assets of the top gold exchange-traded fund are near a seven-year low. Short positions on COMEX are at a record high, according to recent U.S. government data, though that could also trigger some near-term short covering.
Several brokerages have predicted that gold will drop below $1,000 an ounce next year.
Support for gold from physical markets also looks bleak. In top consumer China, there are fears of a protracted loss of confidence among buyers, with many predicting that demand could fall for a third year in 2016. urn:newsml:reuters.com:*:nL3N14727E
Trading is expected to remain quiet as liquidity thins ahead of the Christmas holiday. Japanese markets were closed on Wednesday.
The dollar was little changed in Asian trading on Wednesday, following a three-day losing streak, after data overnight painted a mixed picture of the U.S. economy, offering some support for gold. USD/
U.S. home resales posted their sharpest drop in five years in November. urn:newsml:reuters.com:*:nL1N14B0PB
Other data on Tuesday showed the U.S. economy grew at a fairly healthy clip in the third quarter as strong consumer and business spending offset efforts by businesses to reduce an inventory glut. urn:newsml:reuters.com:*:nL1N14B0RC
PRICES AT 0643 GMT
Metal
Last
Change Pct chg
Spot gold
1074.98
3.02
0.28 Spot silver
14.274
0.019
0.13 Spot platinum
869.85
-0.51
-0.06 Spot palladium
555.75
3.1
0.56 Comex gold
1074.6
0.5
0.05 Comex silver
14.265 -0.049
-0.34
COMEX gold and silver contracts show the most active months
(Editing by Tom Hogue; Editing by Sunil Nair)