Gold Hits Six-Week Low on Greek Deal Hopes

Gold hit a six-week low on Wednesday, extending the previous day's steep losses, as hopes for a successful resolution to Greece's debt talks sent European stocks to a seven-year high.

Platinum prices also slid to their lowest in 5-1/2 years, hurt by the weakness in gold.

Spot gold fell to $1,202.88 an ounce, its lowest since Jan. 6, and was down 0.3 percent at $1,205.31 at 1508 GMT. U.S. gold futures for April delivery were down $3.30 an ounce at $1,205.30.

"The market remains relatively positive that in the end there will be an agreement between the euro zone and Greece, so they don't see that as an extreme tail risk," ABN Amro analyst Georgette Boele said.

The market looks vulnerable to further losses as Chinese buyers take a break for the Lunar New Year holidays, traders said. They are also awaiting further direction from the minutes of the Federal Reserve's latest policy meeting later.

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.

"Moves in precious metals are mainly related to interest rates, and for the end of 2015 we're still expecting higher rates," Boele said. "The combination of higher rates and a higher dollar is not usually a good one for gold."

The dollar rose 0.3 percent against the euro on Wednesday ahead of the minutes.

Stocks stormed to multi-year highs in Europe as investors shrugged off uncertainty over Greece's debt negotiations, hoping a deal will be reached by the end of the week.

Greece will submit a request to the euro zone on Thursday to extend a loan agreement for up to six months, but EU paymaster Germany says no such deal is on offer and Athens must stick to the terms of its existing international bailout.

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

"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 0.8 percent at $16.36 an ounce. Spot platinum fell to a new 5-1/2 year low at $1,163.75 an ounce, while spot palladium was down 0.4 percent at $776.47 an ounce. (Additional reporting by A. Ananthalakshmi in Singapore; editing by David Clarke and Jason Neely)