Gold Price Analysis: XAU/USD eases from tops, downside remains cushioned

Gold surrendered its modest intraday gains and refreshed daily lows, around the $1,781 region during the early European session, albeit lacked follow-through selling.

A combination of factors failed to assist the precious metal to capitalize on its early uptick, instead prompted some fresh selling around the $1,790 region. Bearish traders might now be looking to extend the previous day's retracement slide from the vicinity of the $1,800 round-figure mark, or near two-month tops.

Investors seemed to have digested the overnight report that the Biden administration is seeking an increase in the capital gains tax for wealthy individuals to near 40%. This was evident from a goodish rebound in the US equity futures. This, in turn, was seen as a key factor that undermined the safe-haven XAU/USD.

Apart from this, a modest uptick in the US Treasury bond yields further acted as a headwind for the non-yielding yellow metal. The negative factors, to a larger extent, were offset by the prevalent bearish sentiment surrounding the US dollar, which languished near multi-week lows amid reduced bets for an earlier Fed lift-off.

Investors now seem convinced with the view that any spike in inflation is likely to be transitory and that the Fed will keep interest rates near zero levels for a longer period. This was seen as a key factor that extended some support to the dollar-denominated commodity and should help limit deeper losses, at least for now.

Market participants now look forward to the release of the flash Manufacturing and Services PMI prints. The data will offer fresh insight into how the economy is performing and influence the USD. This, along with the US bond yields and the broader market risk sentiment, might provide some impetus to the XAU/USD.

Technical levels to watch