Spot gold dives on reports of Greek bailout deal

Getty Images

Gold fell on Friday after Euro ministers and Greek officials reached an agreement to extend heavily indebted Greece's financial rescue by four months, officials on both sides told Reuters.

An agreement removes the immediate risk of Greece running out of money next month and possibly being forced out of the single currency area. It provides a breathing space for the new leftist-led Athens government to try to negotiate longer-term debt relief with its official creditors.

Spot gold, lower flat, was down 0.7 percent to $1,199 an ounce. The metal has lost 1.6 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.

U.S. gold futures for April delivery settled down $2.70, a $1,204.90 before the report surfaced. It was down about $8 to $1,199.50 ab ounce in after hour trading.

Fund managers bet on gold amid Greek uncertainty

The dollar rose against the euro after German news magazine Der Spiegel reported that European Central Bank officials are preparing for a departure of Greece from the euro zone.

Traders Kilburg and Iuorio debate gold

The start of the emergency meeting of the 19-nation Eurogroup in Brussels was postponed until 1530 GMT.

Greece's new prime minister said he was certain euro zone finance ministers would accept Athens' request as EU paymaster Germany softened its hostile tone.

Eurozone officials are about to start the meeting and gold prices will react anything that comes out of that, Natixis analyst Bernard Dahdah said.

"That could impact prices in the immediate term but ultimately, it will be gold's inverse relationship with the dollar that will prevail."

Traders were set to focus on the U.S. 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.

Read MoreA Fed rate hike is coming—the question is when

Any hike by the Fed, which has kept rates near zero since 2008 to stimulate the U.S. 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."