Investor attention is focused on Fed Chair Janet Yellen’s two-day testimony set to be presented to the US Senate and House of Representatives during the semi-annual monetary policy report. Based on the last Federal Open Market Committee minutes released on July 5th, Yellen is likely to testify that the Fed will try to reduce its mortgage-backed securities and Treasury bond holdings starting in August.
The FOMC has also indicated that another interest rate hike might happen this year, especially given the latest employment data. Gold is highly sensitive to rising rates as it increases the opportunity cost of holding an asset that earns no interest. In the meantime, the metal remains in a strong intermediate-term downward trend, with the selloff likely to accelerate in the event of a convincing close below the key psychological level of $1200.