Gold near 6-week low as equities recover on hopes of Greek deal

Gold was trading near its lowest in six weeks on Wednesday as global equities recovered on signs Greek banks will continue to receive emergency funding despite a breakdown in debt talks between Athens and its creditors.

Spot gold was steady at $1,208.45 an ounce by 0038 GMT. It fell to $1,203.30 on Tuesday, its lowest since Jan. 6, before closing down 1.8 percent, as global equity markets recovered to trade slightly higher. Technical selling also added to the losses.

Greece intends to ask for an extension of its loan agreement with the euro zone on Wednesday, a source in Brussels said, distinguishing this from its full bailout program.

Meanwhile, a war of words between Greece and EU paymaster Germany escalated on Tuesday with Athens' new leftist prime minister rejecting what he called "blackmail" to extend an international bailout and vowing to rush through laws to reverse labor reforms.

Investors typically seek safety in bullion during economic uncertainties and when riskier assets such as equities take a hit. But hopes that a compromise would eventually be reached between Greece and international lenders deterred investors from increasing their exposure to gold.

Adding to bullion's woes, No. 2 consumer China will be closed for a week from Wednesday for the Lunar New Year holiday, removing a key support for gold prices.

Chinese buying had been robust since the beginning of the year in the run up to the holiday, when gold is bought for gift-giving. But sales are expected to taper off during and after the holiday.

Traders will also be eyeing minutes from the Federal Reserve's latest policy meeting to be released on Wednesday for clues on when the U.S. central bank could raise interest rates.

Higher interest rates would boost the dollar and hurt non-interest-bearing gold.

Hedge fund Paulson & Co kept its stake in the gold-backed exchange-traded fund SPDR Gold Trust unchanged for a fifth straight quarter in the three months ending Dec. 31, a filing with the U.S. Securities and Exchange Commission showed on Tuesday.

Varchev Finance