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Gold back below $1,300 as dollar pares some losses

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Gold fell below $1,300 an ounce on Wednesday as worries about the global economy cooled after various reports offered details about the European Central Bank's planned bond buying program.

European Central Bank is planning to announce a 50 billion euros ($58.3 billion) a month quantitative easing (QE) program, sources with knowledge of the situation confirmed to CNBC on Wednesday.

The potential size of the program was previously seen around 600 billion euros ($690 billion), according to a Reuters poll.

hit its highest level since Aug. 18 at $1,303.20 an ounce in early trade and was last down 0.4 percent at $1,288 an ounce.

U.S. gold futures for delivery in February declined 0.5 percent to $1,288 an ounce. It reached $1,307 an ounce, its highest level since August 15, earlier.

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The dollar fell 0.2 percent against a basket of currencies, mostly due to a stronger yen after the Bank of Japan kept its monetary policy steady against expectations for more easing.

A softer greenback makes dollar-denominated gold cheaper for holders of other currencies.

Financial markets have been nervous about the ECB policy meeting on Thursday, when the bank is widely expected to unveil a quantitative easing (QE) programme.

Traders also expected the prospects of looming deflation and increased market volatility to support demand for gold.

"We have seen this month the largest SPDR inflows since Aug. 2012 when the Fed was revving up to do QE3 - so ECB QE is having a similar impact," Macquarie analyst Matthew Turner said.

"The issue seems to be about central banks' control of the situation – there is this impression that things are getting a bit out of control again," Turner added. "The risk here for gold is that tomorrow and then next week at the Fed meeting they reassert their control."

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Holdings of SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, jumped 1.55 percent to the highest level since Oct. 29 at 742.24 tonnes on Tuesday.

Bullion has risen 10 percent since the beginning of the year, with its appeal as a hedge against risk burnished by economic uncertainties in Europe, driven by concerns about a possible Greek default.

Markets were focusing on Sunday's snap election in Greece with polls suggesting anti-bailout party Syriza will win, which may set off fresh turmoil in the euro zone.

Worries over the health of the global economy have added to gold's appeal. On Tuesday the IMF cut its forecast for global growth in 2015 and called on governments and central banks to pursue accommodative monetary policies and reforms.