Gold Down Ahead of Yellen Testimony

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 5^th, 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.

Following a significant narrowing of the trade balance a month earlier, German exports grew more than forecast in May, outpacing strong gains in imports while contributing to a widened trade surplus in Europe's largest economy. The Federal Statistics Office reported a seasonally adjusted 1.40% increase in exports - the fifth straight month of gains, while the value of imports increased 1.20%, pushing May’s trade surplus to EUR 20.30 billion from a revised EUR 19.70 billion in April.

The current account surplus, which tracks the flow of goods, services and investments, jumped to EUR 17.30 billion from a revised April figure of EUR 14.90 billion. The surprisingly strong trade figures underline the inherent strength in the German economy, potentially boosting Chancellor Angela Merkel as she seeks a fourth term in upcoming elections.  The DAX 30 index ended Monday mostly flat, with futures moving towards 12480 in early European trade.