Gold prices walking a tightrope over $1,800 psychological level

Gold prices are trading a touch below the psychological $1,800 level in markets that have consolidated in a sea of fundamentals as traders await the next cue.

At the time of writing, the yellow metal is trading at $1,798.76 and has travelled between a range of $1,799.56 and $1,813.49 so far on the day. 

The week has been favourable for inflationary themes which have underpinned gold's allure which benefits from both global growth prospects and on risk-off motifs.

"Gold is trading as a risk asset, in a regime defined by a surge in liquidity and money supply," analysts at TD Securities explained. 

We expect that these common drivers, will continue to drive capital to shelter itself from negative real yields in risk and real assets. 

It is no surprise that in this context, speculative positioning in gold, while not extreme, has begun to bloat,

the analysts argue. 

On the day, there is a slight risk-off tone pertaining to US CHinese tensiionis likely underpinning the US dollar on the 96 handle in the DXY in current trade as US yields firm. 

However, from a longer-term perspective, there are arguments for a softer dollar going forward, on both the global inflationary theme and by comparing growth outlooks between both the US and overseas competitors, such as EMs and specifically China. 

China's V-shape recovery a negative for dollar bulls

There wasn't much for the bears in China's June activity and quarterly Gross Domestic Product has played into the hands of the post-COVOID-19 rout stock traders bettering on a V-shape recovery.

Headline GDP jumped 11.5% in Q2 after -10% in Q1, leaving the economy up 3.2% over Q2 2019.

"If the recovery remains on track as the US lags, Asia-Pacific economies and currencies could be well placed to outperform over H2," analysts at Westpac argued.

Even in the more immediate future, the analysts maintain a bearish outlook.

Next leg of USD bear trend to begin with a break of 96.0 support. Europe inching toward fiscal burden-sharing and the US rebound levelling off amid the sunbelt outbreak.

We will likely have to wait until the FOMC to strengthen its forward guidance at the end-July before markets can take too much of a view on the dollar at this juncture, as the coronavirus situation remains extremely fluid. 

So long as there is the sense that it is ongoing and more of a unique problem for the US, the dollar can remain on the backfoot while gold prices can attract the speculative and long-term bull hedge. 

Gold levels