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Gold drops on bets euro zone will muddle through

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Gold and silver fell to six-week lows, while platinum fell to the lowest since 2009, on signs that Greek banks will continue to get emergency funding despite a breakdown in debt talks between their government and euro zone partners.

A person familiar with the matter told Reuters the European Central Bank (ECB) was unlikely to pull the plug on funding for Greek banks this week, raising hopes that policymakers will eventually break the impasse to strike a deal.

The ECB is set to decide on Wednesday whether to maintain emergency lending to Greek banks.

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Spot gold fell as much as 2.3 percent to its lowest since Jan. 6 to $1,203.03 an ounce in earlier trade and was last down 1.9 percent at $1,208.16. Traders said some of the selling was technical as the market extended losses after falling below the 100-day moving average at $1,216.45.

U.S. gold for April delivery settled down 1.5 percent at $1,208.60 per ounce.

Silver tumbled 5.2 percent to a six-week low of $16.24 an ounce. It was down 4.3 percent at $16.44, while platinum was down 2.2 percent at $1,171.60 an ounce, after dropping to its lowest since July 2009 at $1,164 an ounce.

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``People think that eventually things will move towards a solution because there is a lot a stake in the euro zone,'' Julius Baer analyst Carsten Menke said.

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.

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The broader market sentiment also was not in panic mode and the euro recovered from initial losses on signs Greek banks will continue to get emergency funding despite a breakdown in debt talks between Athens and euro zone finance ministers.

``For now the markets appear to be paying more attention to the prospect that the Fed will start to hike U.S. interest rates in the summer,'' said Julian Jessop, head of Commodities Research for Capital Economics, in a note.

The market was awaiting the minutes from the latest U.S. Federal Reserve's meeting on Wednesday for clues around an expected interest rate hike.

``Minutes will be closely watched ...to see what policymakers' sensitivity is to a June rate hike,'' Macquarie analyst Matthew Turner said.

The dip in gold prices comes on the last trading day before China heads for a week-long Lunar New Year holiday, after which prices could take a further hit as buying from the No.2 consumer tapers off.