PRECIOUS-Gold racks up strongest annual gain in 3 yrs

                                
 * Gold's rally likely to extend into the new year
                                
 * Gold's target modified to $1,421-technicals[ID:nL3E6NV01C]
                                
 * Coming up: U.S. ECRI Weekly index; 1530 GMT
                                
 
                                
 (Updates prices)
                                
 By Amanda Cooper
                                
 LONDON, Dec 31 (Reuters) - Gold rose on Friday, notching up
its strongest annual performance since 2007 and marking a fifth
straight month of gains in December, driven by a weaker dollar
and global economic uncertainty.
                                
 The precious metals complex has had a stellar run this year,
led by palladium's 95 percent rise, in a broad commodities rally
which has pushed up the 19-commodity Reuters-Jefferies CRB index
<.CRB> up 15 percent. [COM/WRAP]
                                
 Spot gold <XAU=> rose 0.6 percent to $1,411.86 an ounce by
1305 GMT, on course for a 29 percent annual gain and a fifth
straight month of gains, the longest stretch of monthly
increases since late 2001. U.S. gold <GCG1> climbed 0.5 percent
to $1,412.50 an ounce.
                                
 The dollar fell 0.4 percent against a basket of currencies
<.DXY>, having fallen by 12 percent against the yen and by more
than 9 percent versus the Swiss franc this year. [USD/]
                                
 "The gold price remains well supported by a weaker dollar
and solid investment demand," said Anne-Laure Tremblay, precious
metals strategist at BNP Paribas.
                                
 "We expect the gold price rally to continue into 2011 on the
back of strong fundamentals, including inflationary pressures
(notably in China), ample liquidity and concerns about the value
of the dollar," she added.
                                
 Traders and analysts expect gold to break above $1,500 in
2011, particularly if the dollar extends its decline, the U.S.
economy remains unable to generate enough jobs to lower
unemployment and Europe's debt crisis is not diffused.
                                
 "It is still a positive picture for metals next year. There
is sufficient demand from investment perspective to maintain a
relatively bullish trend, in gold in particular," said Darren
Heathcote, head of trading at Investec Australia in Sydney.
                                
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 Factbox on the commodities rally in 2010:[ID:nN30107020]
                                
 Commodity performance graphic:
                                
 http://link.reuters.com/ret24r
                                
 ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
                                
 Tempering some of the enthusiasm, holdings in the SPDR Gold
Trust <GLD>, the world's largest gold-backed exchange-traded
fund, fell to 1,280.722 tonnes by Dec 30, its lowest since early
June. [GOL/SPDR]
                                
 Spot palladium <XPD=> rose 0.6 percent to $790.28 an ounce,
after rising to a nine-year high of $795.47 on Thursday.
                                
 Spot silver <XAG=> was the second-best performer in precious
metals, up 82 percent on the year. It was trading up 0.6 percent
at $30.62, retreating from a 30-year peak of $30.88 hit on
Thursday.
 (Additional reporting by Rujun Shen in Singapore; editing by
Keiron Henderson)