Gold prices retreated after making new record highs earlier in the week. News that Libya's government has accepted Venezuelan President Chavez's mediation offer raised market optimism and reduced demand for safe-haven assets. Oil prices also pulled back as concerns over tensions ebbed. ECB President's signaled that the central bank may hike interest rates next month as a means to curb inflation. The surprising news sent the euro higher but gold lower as the metal's strength has been driven by the low-rate environment.

Concerns over unrest in Libya were reduced after news said that the Libyan government has accepted the 'peace deal' proposed by the Venezuelan President Hugo Chavez. However, reports later showed that fighting continued in the country and opposition leaders entirely rejected any talks with Libyan leader Muammar Gaddafi. It appears that the plan does little to help ease tensions in the Arab world.

The most eye-catching news yesterday was that the ECB may raise interest rates in April. Despite speculations that the central bank would begin tightening earlier than previously expected, investors were thrilled as they had not anticipated it would happen in April. In the meeting statement, policymakers noted that higher commodity prices have led to 'a rise in inflation' and risks to the outlook for price developments are 'on the upside'. 'Strong vigilance' is warranted with a view to 'containing upside risks to price stability'. While leaving the main refinancing rate unchanged at 1%, the ECB did not regard current levels in interest rates as 'appropriate' this time. At the press conference, President Trichet said that 'an 'increase of interest rates in the next meeting is possible' though reminding that it will not suggest a 'series' of rate hikes in the pipeline.

Gold was dumped as the ECB is going to increase interest rates to curb inflation. The benchmark Comex contract slipped to as low as 1410.6 before settling at 1416.4, down -1.48%. At the same time, strong US macroeconomic data also sent US rates higher despite Fed Chairman's pledge on easy monetary policy. US rates and gold prices tend to move in opposite directions. US' initial jobless claims fell -23K to 368K in the week ended February 26, bring the 4-week moving average down to 389K. Concerning claims dropped -59K to 3774K in the week ended February 19. The focus today is the February employment report. The market expects while non-farm payrolls increased +183K last month, the jobless rate climbed to 9.1%.