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NEW YORK/LONDON (Reuters) - Gold finished slightly lower on Thursday, falling with the euro, as investors feared European leaders were not much closer to solving the euro zone debt crisis.
Traders were reluctant to add to long positions as year-end approaches, and most long-term traders were out of the market until 2012, leaving gold prices restricted recent ranges.
Spot gold fell to $1,604.30 an ounce by 3:05 p.m. EST, having earlier risen as high as $1,616.50. It ended Wednesday at $1,614.79. Gold remains up 13 percent on the year.
U.S. gold futures for February delivery settled $3.0 an ounce lower at $1,610.60 per ounce in light pre-holiday trade.
The euro slipped on Thursday as investors were unconvinced European leaders were anywhere close to a solution to the region's debt crisis, prompting investors to sell into any rebounds in the single currency.
"Our barometer of euro zone money market liquidity (the Euribor/OIS 3-month spread) remains at elevated levels. A drying up of liquidity poses a serious risk to all commodities, including gold," said Standard Bank in a note.
The euro had risen in earlier trade on hopes the nearly half a trillion euros in three-year funds that banks borrowed on Wednesday from the European Central Bank would ease current funding strains. But, doubts remained over how much of the funds would be lent to boost the ailing euro zone economy or used to cut back exposure to government debt.
"People are not looking at gold as a safe haven, and that is one of the reasons for this lackluster performance," said Commerzbank analyst Eugen Weinberg. "I wouldn't be surprised to see further weakness in gold prices going forward."
Commodity index rebalancing in early January could have a big impact on prices and positioning of gold. Edel Tully, market strategist with UBS Investment Research wrote in a daily report that the Dow Jones-UBS Commodity Index will be rebalanced and reweighted from the fifth to ninth business days of January.
"With gold's DJ-UBS index weight set to fall to 9.79 percent from 10.45 percent, we estimate approximately 15,550 gold contracts will be sold," said Tully's note.
"For gold, this will be the next gauge of whether investors start 2012 with the same disappointment with which they ended 2011, or with fresh enthusiasm and renewed appetite," it added.
Asset returns in 2011: link.reuters.com/daj24s
Gold correlation with dollar: r.reuters.com/ryx52s
Inflation adjusted gold price: r.reuters.com/pun62s
Gold in different currencies: r.reuters.com/wun62s
Gold/silver ratio: r.reuters.com/xyx52s
Gold/platinum ratio: link.reuters.com/xez92s
The gold price stayed below the 200-day moving average, which sits at $1,623.53 an ounce on Thursday, for the seventh consecutive close, indicating little appetite for higher levels.
"We still see little chance for gains here until year end," said VTB Capital in a note. "Gold will stall below short-term resistance at $1,620, in our view. The market failed to breach it yesterday, also having tested more resistance at $1,640."
On the physical markets, gold demand in number one consumer India remained sluggish, dealers in Mumbai said, largely due to seasonal factors. The period of Khar Mass, from December 16 to January 14, is considered inauspicious for gold buying.
Holdings of the world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, dropped by nearly 389,000 ounces on Wednesday, the fund said.
Among other precious metals, silver was down at $29.05 an ounce from $29.35 previously. Spot platinum slipped to $1,418.49 an ounce from $1,423.49, while spot palladium was up at $647.79 an ounce from $631.47 at Wednesday's finish.
Reporting by Carole Vaporean; Editing by Alden Bentley