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Tue 17 Feb 2015 12:36 PM

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Gold slips after 3-day rally, strong dollar hurts

Buying from China has been supportive of gold prices in the run up to Chinese New Year

Gold slips after 3-day rally, strong dollar hurts

Gold took a breather on Tuesday after a three-day rally as a stronger dollar offset gains from safe-haven bids prompted by a break down in talks between Greece and its creditors.

Spot gold fell 0.3 percent to $1,228.01 an ounce by 0345 GMT. It gained about 1 percent in the past three sessions.

The dip 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.

"Some form of consolidation is expected to occur as Asian traders close out positions ahead of the long Chinese New Year holidays," said Howie Lee, analyst at Phillip Futures, adding that prices will range between $1,215 and $1,240.

Buying from China has been supportive of gold prices in the run up to the holiday, when the yellow metal is bought widely for gift-giving. Premiums on the Shanghai Gold Exchange were firm at $3-$4 an ounce, indicative of robust demand.

"Demand in China has certainly been price responsive, but interest tends to taper off after the Lunar New Year, leaving (gold) prices more exposed," Barclays analysts said in a note dated Monday.

Bullion had also been getting support from developments in Europe that triggered safe-haven bids.

Talks between Greece and euro zone finance ministers over the country's debt crisis broke down on Monday when Athens rejected a proposal to request a six-month extension of its international bailout package as "unacceptable".

The unexpectedly rapid collapse raised doubts about Greece's future in the euro zone after a new leftist-led government vowed to scrap the 240 billion euro ($272.4 billion) bailout, reverse austerity policies and end cooperation with EU/IMF inspectors.

Investors typically seek safety in bullion during economic uncertainties, and when riskier assets such as equities take a hit. But on Tuesday, a stronger dollar took a toll on bullion as it makes the greenback-denominated metal more expensive for holders of other currencies.

A weaker euro and expectations of an interest rate hike by the U.S. Federal Reserve some time this year boosted the dollar.

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