Gold under pressure despite softer dollar as fund outflows weigh

By A. Ananthalakshmi

SINGAPORE (Reuters) - Gold eased on Wednesday even as the dollar nursed sharp losses on expectations of a Greek debt deal, with investor sentiment remaining bearish due to outflows from bullion-backed funds.

Spot gold slipped 0.2 percent to $1,191.40 an ounce by 0632 GMT, after gaining 0.4 percent on Tuesday.

Traders said gold's overnight jump was underwhelming given the sharp drop in dollar and weak U.S. factory data, which should have typically triggered strong safe-haven bids.

"The move is disappointing considering the very weak dollar environment," said analysts at ScotiaMocatta.

"The gold market continues to move sideways around $1,200 with no indication of which way it should break."

The dollar slid about 1.5 percent in the previous session against a basket of major currencies, and continued to remain under pressure on Wednesday.

The losses were triggered by the strength in the euro after Greece's creditors on Tuesday drafted the broad lines of an agreement to put to the leftist government in Athens in a bid to conclude four months of acrimonious negotiations and release aid before the cash-strapped country runs out of money.

Failure to reach agreement this month could trigger a Greek default and lead to the imposition of capital controls and a potential exit from the euro zone, dealing a serious blow to Europe's supposedly irreversible single currency.

Bullion had gotten some support in recent sessions from the uncertainties over the Greek debt crisis as investors sought safety in the metal.

However, the uptick in prices is being undermined by continuous outflows from gold exchange-traded funds (ETF), a sign that investors are not confident of any price gains.

Holdings in SPDR Gold Trust, the world's largest gold ETF, fell 4.18 tonnes to 709.89 tonnes on Tuesday, the lowest since January.

Holdings in the top eight gold ETFs were at a five-year low, as of Monday.

Markets also continued to await more U.S. economic data, including the monthly non-farm payrolls report on Friday, to gauge the strength of the economy and how it would affect the Federal Reserve's interest rate policy. Higher rates would reduce demand for non-interest-paying bullion.

(Reporting by A. Ananthalakshmi; Editing by Richard Pullin and Biju Dwarakanath)