- Strong follow-through USD buying continued exerting some downward pressure on gold.
- A softer risk tone, retreating US bond yields helped limit any deeper losses for the metal.
- The set-up favours bearish traders and supports prospects for a further near-term decline.
Gold reversed the Asian session dip to fresh multi-month lows and was last seen trading just above the $1720 level, nearly unchanged for the day.
Gold prolonged its recent bearish trajectory and continued losing ground through the early part of the trading action on Tuesday. Sustained US dollar buying was seen as one of the key factors that continued exerting pressure on the dollar-denominated commodity, though a combination of factors helped limit deeper losses.
The greenback remained well supported by the optimism over a relatively faster US economic recovery from the pandemic. The narrative was reinforced by the US ISM Manufacturing PMI, which jumped to a three-year high level of 60.8 in February. This comes amid the progress on a massive US fiscal spending plan, which along with the impressive pace of COVID-19 vaccinations has been fueling the reflation trade.
The negative factor, to a larger extent, was offset by a softer risk tone, which tends to underpin demand for the safe-haven XAU/USD. This, along with a modest pullback in the US Treasury bond yields, extended some support and assisted the non-yielding yellow metal to find some support ahead of the $1700 round-figure mark.
The intraday bounce could further be attributed to some short-covering amid oversold conditions on short-term charts. That said, the overnight rejection near a horizontal support, now turned resistance near the $1760-65 region and the lack of any follow-through buying warrants some caution before placing any bullish bets.
In the absence of any major market-moving economic releases, the USD price dynamics will play a key role in influencing the XAU/USD. Apart from this, the broader market risk sentiment and the US bond yields will also be looked upon to grab some short-term trading opportunities around the commodity.