Gold prices march-on above a key support structure as inflation expectations ramp-up

Gold has made a mark on the $1,800 level, holding the support structure above $1,786/90 on a retest and pulling in commitments from the bulls.

Inflation expectations and uncertainties remain the core fundamentals of the outlook. 

We have seen risk markets improved on the back of promising vaccine results which tempered some of the bullishness out of gold momentarily.

Banks earnings season, so far, exceptionally good 

Meanwhile, US equities are a strong focus for this week considering the bank's earnings.

As much of the coronavirus markets have been, full of surprises, it might have been somehow expected to be no different for this week's earnings results considering it was a quarter ladened with economic lockdowns and bankruptcies in the US. 

Even with the CEO of JPMorgan Chase's stark warnings in yesterday's guidance yesterday, investors are committed to the bid on the back of stronger-than-expected second-quarter earnings results from the majority of the results so far. 

Despite some recent positive macroeconomic data and significant, decisive government action, we still face much uncertainty regarding the future path of the economy,

Chase CEO Jamie Dimon said in a statement. 

However, we are prepared for all eventualities as our fortress balance sheet allows us to remain a port in the storm.

This is not a normal recession. The recessionary part of this you're going to see down the road... You will see the effect of this recession. You're just not going to see it right away because of all the stimulus.

Today, Goldman Sachs also reported stronger-than-expected second-quarter earnings results, as surging revenues despite the pandemic buttressed the bottom line and its stock price.

Goldman’s Fixed Income, Currency and Commodities (FICC) sales and trading revenue $4.23 billion, the highest quarterly revenue in nine years.

Meanwhile, equities trading generated $2.94 billion in revenues, its best quarter in 11 years. Collectively, those businesses accounted for 54% of Goldman’s quarterly revenues.

The firm’s core investment banking business delivered $2.66 billion in earnings, up 36% from the same period a year ago.

The turbulence we have seen in recent months only reinforces our commitment to the strategy we outlined earlier this year to investors,

CEO David Solomon said in a statement.

While the economic outlook remains uncertain, I am confident that we will continue to be the firm of choice for clients around the world who are looking to reshape their businesses and rebuild a more resilient economy,

he confidently added, setting the stage for higher markets for the foreseeable future. 

So where does this leave gold?

The yellow metal can take a breather on a mix of risk-on and firmer dollars, but the inflation injection could be real should the rubber hit the road in terms of a vaccine impetus.

An experimental vaccine, developed by Fauci's colleagues at the National Institutes of Health and Moderna Inc is the first COVID-19 vaccine tested in the US and it has been reported to have heightened 45 volunteers immune systems just the way scientists had hoped.

"No matter how you slice this, this is good news," Dr. Anthony Fauci, the US government's top infectious disease expert, told The Associated Press.

The shots are poised to begin key final testing around July 27. It will be a far larger study of 30,000-people which will prove whether or not the shots really are strong enough to protect against the coronavirus.

Any weakness from a risk-on environment should be only a temporary knee-jerk reaction.

A vaccine would do well to boost inflation expectations as confidence grows in the economic recovery, leaving real rates trading near their lows, which is a powerful driver of gold prices,

analysts at TD Securities argued. 

Looking forward, however, we may soon be entering a period in which tactical trading could reap its benefits.

After all, as inflation expectations normalize towards pre-pandemic levels, the marginal tick higher in expectations may have a more stringent hurdle.

Also, while not at worrying levels just yet, we are starting to note a renewed speculative interest in the gold futures market, as positioning levels grew substantially in recent weeks.

On the industrial side, should commodity demand resume its upward trajectory, the white metal could continue to outperform — benefiting from both the positive precious metals environment and its industrial characteristics.

That being said, we do not expect significant flow from CTA trend followers for the time being.

Gold levels

The daily chart has shows price holding above structure follwing a correction of the prior impulse. 

Bulls will look for the current resistance to turn to support to confirm an upside bias within this potential impulse.