Gold Price Analysis: XAU/USD struggles for direction, flat-lined below $1740 level

• A combination of factors assisted gold to reverse an intraday dip to the $1730 region.
• The cautious mood, sliding US bond yields extended some support to the commodity.
• A strong pickup in the USD demand capped any meaningful upside for the XAU/USD.

Gold reversed an intraday dip to the $1731 region and edged back closer to daily tops during the early European session, albeit lacked follow-through. The commodity was last seen trading just below the $1740 level, nearly unchanged for the day.

Investors turned cautious after the US, Canada, UK and EU – in a rare, coordinated move – imposed sanctions on Chinese officials over human rights violations in Xinjiang. This was evident from a weaker trading sentiment around the equity markets, which, in turn, extended some support to the safe-haven XAU/USD.

The flight to safety was reaffirmed by a fresh leg down in the US Treasury bond yields, which further drove some flows towards the non-yielding yellow metal. That said, a strong pickup in the US dollar demand kept a lid on any meaningful gains for the dollar-denominated commodity, warranting caution for bullish traders.

The greenback remained well supported by the prospects for a relatively faster US economic recovery, bolstered by the passage of a massive US stimulus package. The optimistic economic outlook was reaffirmed by Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen's prepared remarks for testimony on Tuesday.

Even from a technical perspective, the XAU/USD, so far, has struggled to move back above the $1740-42 supply zone. The lack of any strong follow-through buying suggests that the recent bounce from multi-month lows might have run its course and supports prospects for the resumption of the recent sharp pullback from multi-year tops.

Hence, any subsequent strength is likely to be seen as a selling opportunity and runs the risk of fizzling out rather quickly. This, in turn, should cap the upside near a previous strong support breakpoint, now turned resistance near the $1760-65 region, which should now act as a key pivotal point for short-term traders.

Technical levels to watch