Gold Price Analysis: XAU/USD remains depressed below $1,780, downside seems limited

Gold reversed an intraday dip to the $1,774 area and moved back closer to daily tops during the early European session, albeit lacked follow-through. The commodity was last seen hovering around the $1,778 region, down 0.15% for the day.

A combination of factors failed to assist the precious metal to capitalize on the overnight bounce from multi-day lows, around the $1,768 region. That said, the downside remains cushioned, at least for the time being, as investors await the latest monetary policy update by the FOMC on Wednesday before placing aggressive bets.

The underlying bullish tone in the financial markets continued undermining demand for the safe-haven XAU/USD. The risk-on flow was reinforced by a modest uptick in the US Treasury bond yields, which extended some support to the US dollar and further collaborated towards capping the upside for the dollar-denominated commodity.

However, worries that surging COVID-19 cases in India and Japan could derail the global economic recovery extended some support to the XAU/USD and helped limit losses. Investors also seemed reluctant, rather preferred to wait on the sidelines ahead of the key event risk – the FOMC monetary policy decision.

Investors will look for reassurance that the Fed will keep interest rates low for a longer period. This should support prospects for an extension of the recent appreciating move for the XAU/USD. However, any hawkish signals should act as a headwind for the non-yielding yellow metal and prompt some aggressive selling.

Heading into the key event risk, traders on Tuesday will look forward to the release of the Conference Board's US Consumer Confidence Index. This, along with the US bond yields, will influence the USD price dynamics. Apart from this, the broader market risk sentiment might also contribute to produce some trading opportunities around the XAU/USD.

Technical levels to watch