TOKYO (Reuters) - Gold was little changed on Tuesday in light trading as investors were slow to return from the holidays, with European and other major metals markets closed since late last week for Christmas.
With the dollar holding firm against other major currencies, and long positions in gold futures winding down, traders expected the market to remain subdued until the new year, when players return in full force and key data is due for release. U.S. jobs figures are out in early January.
Expectations for more central banks to start purchasing gold to stock up their reserves and diversify allocations, along with views that the dollar will stay pressured due to prospects for prolonged low U.S. interest rates, will keep support firm for bullion, analysts said.
There is also an indication that excessive long positions in gold futures have somewhat been cleared while many dollar short positions have also been covered, paving the way for gold to test new highs early in 2010, said Koichiro Kamei, managing director at financial research firm Market Strategy Institute.
"The dollar's recent firmness was partly due to the covering of excessive short dollar positions, and that adjustments seem to be coming to an end," he said.
"Gold's correction may also be over, and talk of central bank buying will again be the main driver for gold to rally. News of fresh central bank buying would likely trigger a rally to new record high prices for bullion," Kamei said.
Spot gold stood at $1,104.85 an ounce as of 0615 British time, compared with New York's notional close of $1,105.60. It hit a record high of $1,226.10 on December 3 but fell to a seven-week low of $1,074.10 last week due to a sharp rise in the dollar against the euro.
At current levels, spot gold is set to close the year with its biggest gain in seven quarters and the largest rise in two years.
U.S. gold futures for February delivery were down 0.2 percent at $1,105.40 an ounce from $1,107.90 an ounce on the COMEX division of the New York Mercantile Exchange on Monday.
Futures rose to a record high of $1,227.50 on December 3.
British markets were closed for the Boxing Day holiday on Monday. Markets in India, the world's biggest gold consumer, and other Commonwealth countries were also shut.
Many Japanese companies are on New Year's holidays until January 4.
Noncommercial net long U.S. gold futures positions fell 7 percent to 238,076 contracts in the week to December 22 from 256,108 lots, a weekly report by the U.S. Commodity Futures Trading Commission showed.
The net long positions were the lowest since the week to November 17, when such positions totalled 235,697 contracts.
The world's largest gold-backed exchange-traded fund, SPDR Gold Trust, said its holdings stood at 1,132.708 tonnes as of December 28, unchanged since December 21. Holdings hit a record high of 1,134.03 tonnes on June 1.
The dollar index, a gauge for the greenback's performance against six other major currencies, rose 0.1 percent to 77.740 <.DXY>, in sight of a 3-1/2-month high of 78.449 hit last week.
Platinum and palladium rallied last week after news that a British firm had come a step closer to launching the first U.S. exchange-traded funds for the precious metals used to clean auto emissions.
(Additional reporting by Risa Maeda; Editing by Michael Watson)
