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Gold slips towards six-week low on hopes for Greece deal

Gold has come under pressure from expectations the Fed will raise interest rates as early as June this year

Published: Updated:

Gold eased towards six-week lows on Wednesday, extending the previous day's 1.8 percent drop, as hopes for a successful resolution to Greece's debt talks boosted assets seen as higher risk, such as stocks.

The market is awaiting further direction from the minutes of the U.S. Federal Open Market Committee's (FOMC) policy meeting later, but looked vulnerable to further losses with the absence of Chinese buyers during the Lunar New Year break.

Spot gold was down 0.1 percent at $1,207.21 an ounce at 1014 GMT, while U.S. gold futures for April delivery were down $1.20 an ounce at $1,207.40. Spot prices hit their lowest since early January on Tuesday at $1,203.30.

"Greece remains the joker, and from looking at all markets from stocks to bonds and the euro the market firmly believes that a solution will be found despite all the current obstacles," Saxo Bank's head of commodity strategy Ole Hansen said.

"Failure will attract buying of gold, but for now traders are reluctant to get involved. Main attention today should be the FOMC minutes, considering the continued dislocation between where the market and where the FOMC have indicted rates will go."

Gold has come under pressure from expectations the Fed will raise interest rates as early as June this year, potentially lifting the dollar and boosting the opportunity cost of holding non-yielding assets, such as bullion.

The dollar rose 0.2 percent against the euro on Wednesday ahead of the minutes. European shares were up 0.6 percent as investors hoped that Greece will resolve debt negotiations with its creditors by the end of the week.

Greece's government confirmed it would ask on Wednesday for an extension to its loan agreement with the euro zone, which it distinguishes from its full bailout programme.

In Asia overnight, precious metals house MKS said in a note that gold trading volumes through Globex had been the smallest it had seen in months, as the Lunar New Year holidays commenced.

"The absence of China today certainly made an impact on turnover and price action and a quiet week is expected," it said. "Tomorrow and Friday, Hong Kong, Singapore and Malaysia will join them on holiday so things should slow down even further and liquidity will become even more scarce."

Silver was down 0.6 percent at $16.39 an ounce. Spot platinum was flat at $1,170.95 an ounce, close to the previous session's 5-1/2 year low, while spot palladium was flat at $779.05 an ounce.