The Morning Gold Report: Gold Retreats Following ECB Rate Hike

Jul 03 a.m. (USAGOLD) - Gold has retreated into the range after ECB president, Jean-Claude Trichet, took a slightly less hawkish stand following a 25bp rate hike.

The bump in the ECB's refi rate to 4.25% was widely anticipated and Trichet was expected to maintain a firm inflation-fighting stance at the follow-on press conference. The euro rose to a new 2-month high above 1.5900 in anticipation.

However, Mr. Trichet's comments at the press conference had a more neutral tone than many were expecting. He implied that after today's 25bp rate hike; monetary policy contributes to achieving the goals of preserving purchasing power and anchoring expectations.

The ECB chief did not go so far as to say that rates are now appropriate, adding that the bank would continue to monitor developments very closely. This leaves the door open for further rate hikes down the road, but the less than convincing tone prompted a round of profit taking in the euro.

The EUR-USD rate tumbled back below 1.5800 as traders who had been betting on a more hawkish ECB tone squared positions ahead of the long holiday weekend in the US. The resulting firmer tone in the dollar had a negative impact on gold.

We'll see if the hawkish Mr. Trichet returns in the weeks ahead if upside price risks persist, as they are likely to do. It won't take much to get the euro back on track for a short-term retest of the 1.6020 all-time high from Apr, which would have gold moving higher again as well.

Gold's retreat into the range leaves important chart/Fibonacci resistance at 954.70/960.88 intact for the time being. However, good buying interest is likely to be seen on dips ahead of the pivotal 900.00 level.

As the long-term uptrend in the yellow metal continues to re-exert itself, an eventual push above 960.88 would lend considerable credence to the scenario that calls for renewed probes above $1,000.