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Gold rose on Friday, rebounding from six-month lows touched on Thursday as the dollar weakened, but the euro zone crisis that has kept investor cash out of the market will stay in sharp focus heading into the new year after a volatile 2011.
The precious metal headed for a rise of nearly 10 percent for 2011, after 10 straight annual gains. But it is down nearly 19 percent from a record $1,920.30 US hit in September, and is on track for its first quarterly loss in more than three years.
Despite the difficult year gold has in recent months often abandoned its traditional status as a shelter from turmoil as investors liquidated positions to free up dollars as the euro zone debt crisis caused money markets to seize up.
Gold still gave investors a return of about 9.3 percent in 2011, but it underformed U.S. 10-year Treasuries, which returned about 17 percent, Brent crude oil gave 13.5 percent and German 10-year Bunds 31.1 percent.
Spot gold was up 1.6 percent at $1,570.79, but was still down around 10 percent for the month.
"We need to see the hot money from speculators, we need to see real money from the money managers coming back to this market, they have been absent throughout December," said Saxo Bank senior manager Ole Hansen said.
A weaker dollar helped prop up precious metals. The U.S. dollar index edged lower, after rising to its highest in more than 11 months in the previous session.
"That is really where it's coming from," Hansen said.
A weaker dollar can lift dollar-denominated commodities by making them less expensive for consumers using other currencies.
The most-active U.S. gold futures contract gained 2 percent to $1,572, snapping six straight sessions of losses.
Technical analysis suggested that spot gold could rebound to $1,588 during the day, said Reuters market analyst Wang Tao.
The 20-day moving average crossed below the 200-day moving average for the first time since 2009, forming what some analysts call a "death cross," but others said gold is facing a lengthy consolidation phase rather than a bear market.
"A negative crossover in moving averages can be seen as a selling signal," said Tim Riddell, head of ANZ Global Markets Research, Asia.
"But in gold's profile, it is probably a confirmation signal that gold has made a cyclical high in the third quarter, and will likely see a more protracted consolidation phase than the market would initially wish to see."
Industrial metals and equities also rose in the last trading day of the year, but concerns about the euro zone debt crisis and global growth remain.
Italy, the euro zone's third-largest economy, remains at the centre of the debt crisis that began in Greece two years ago and its borrowing needs could overwhelm the bloc's financial defences if it were forced to seek an international bailout.
But in the United States, employment, housing market and manufacturing data pointed to growing momentum in the world's largest economy.
Physical buying is also up, with falling gold price pushing up demand in India, luring jewellers who began restocking and preparing for the wedding season beginning mid-January.
The Lunar New Year in about three weeks will also help support gold consumption in China, traders said.