Gold turned lower in choppy dealings early on Friday, flirting with a seven-week low after the euro zone discussed extending the Greek bailout by just four months, while prices headed for their fourth straight weekly drop. A draft text on extending Greece's bailout from its international creditors proposes prolonging the program by four months rather than a previously suggested six, officials from Greece and other euro zone states said on Friday.
Spot gold turned down 0.7 percent at $1,198.55 an ounce by 2:49 pm EST (1949 GMT). The metal has lost 2.5 percent so far this week, dipping to its lowest in six weeks at $1,197.56 on Wednesday, when hopes for a successful resolution to Greece's debt talks boosted investor appetite for risk. US gold futures for April delivery settled down $2.70 an ounce at $1,204.90 on the day.
"Overall, gold is lower as the market grows increasingly optimistic about a positive resolution, hence less need for a safe haven investment," said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York. The euro traded near session highs against the US dollar after the Greek bailout was drafted.
Traders were set to focus on the US Federal Reserve and its monetary policy for clues on a possible interest rates hike by June, despite caution evident in the minutes from the latest Fed policy meeting. Any hike by the Fed, which has kept rates near zero since 2008 to stimulate the US economy, could hurt demand for non-interest-bearing bullion. Liquidity was thin in Asia as No 2 consumer China and several other Asian countries were shut for the Lunar New Year holiday.
Gold prices had received some support from Chinese buying ahead of the holiday, when gold is bought for gift giving. "A lot hinges on the return of China next Wednesday as many participants are expecting them to be on the bid following their New Year festivities," MKS Group said in a note. "If this fails to be the case, the complex would likely continue its slide lower." Silver fell 1.1 percent to $16.18 an ounce, while platinum dropped 0.7 percent to $1,157.75 an ounce, after reaching a 5-1/2 year low at $1,151.40 earlier. Palladium fell 0.6 percent to $779.80 an ounce.
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