Gold Price Analysis: XAU/USD holds steady below two-week tops, downside seems limited

Gold witnessed a modest pullback from two-week tops and was seen trading with a mild negative bias, around the $1868 region during the early European session.

The prevalent upbeat market mood – as depicted by the ongoing rally in the global equity markets – seemed to be the only factor that prompted some profit-taking around the safe-haven XAU/USD. The market has been pricing in the prospects for more aggressive government spending under Joe Biden's presidency.

In fact, Biden pitched a plan to pump $1.9 trillion into the struggling US economy during his first hours as the new US President. This comes on the back of the optimism over the rollout of COVID-19 vaccines, which fueled expectations of a strong economic recovery and continued boosting investors' confidence.

The precious metal, for now, seems to have stalled this week's solid rebound from the vicinity of the $1800 mark, or multi-week lows touched on Monday. That said, a weaker tone surrounding the US dollar might extend some support and help limit any meaningful downfall for the dollar-denominated commodity.

Bulls might further take cues from the ongoing pullback in the US Treasury bond yields, which tends to drive flows towards the non-yielding yellow metal. This makes it prudent to wait for some strong follow-through selling before confirming that the recent positive move might have already run out of the steam.

Market participants now look forward to the US economic docket, featuring the release of Philly Fed Manufacturing Index, the usual Initial Weekly Jobless Claims and housing market data. This, along with the broader market risk sentiment, might produce some short-term trading opportunities around the XAU/USD.

Technical levels to watch