LONDON (Reuters) - Gold held steady in thin year-end trade on Tuesday, on course for its biggest annual decline in 32 years as prospects for global economic recovery prompted investors to switch to riskier assets. After a 12-year bull run gold has shed around 28 percent in 2013, with the U.S. Federal Reserve's plan to step away from ultra-loose monetary policy undermining the investor case for holding bullion.
Years of accommodative monetary policies had propelled the price of gold to all-time highs of $1,920.30 an ounce in September 2011, as low interest rates encouraged investors to put money into non-interest-bearing assets.
"As soon as short-term interest rates start rising then you can't afford to invest in something that doesn't pay yield like gold - it's going to be equities and ... money market funds will also seem more attractive," Standard Bank analyst Walter de Wet said.
"In that sort of environment (of higher rates) the key is the yield and also the credit risk, which is substantially lower right now, and not really working in favour of gold demand."
Spot gold was up 0.1 percent at $1,197.66 an ounce at 1307 GMT, while U.S. gold futures for February delivery fell 0.6 percent to $1,197.40 an ounce.
In wider markets, world stocks were ending 2013 close to six-year peaks and benchmark bond yields were poised for their first annual rise since 2009 as investors celebrated a pick-up in global growth with expectations of more to come.
The dollar was on track to end 2013 modestly higher against a basket of main currencies.
Gold was also set to post hefty annual losses in other currencies, with prices in euros down 31 percent on the year, the first fall since 2004. Prices fell 30 percent in Swiss francs and 29 percent in British pounds.
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