Gold Price Analysis: XAU/USD clings to recovery gains above $1750 level, upside seems limited

• Gold gained some positive traction and recovered a part of Friday’s slump to multi-month lows.
• Retreating US bond yields weighed on the USD and extended some support to the commodity.
• The upbeat market mood might keep a lid on any meaningful gains for the safe-haven XAU/USD.

Gold edged higher through the early European session and was last seen hovering near the top end of its daily trading range, just below the $1760 level.

Gold managed to regain positive traction on the first day of a new trading week and has now recovered a part of Friday's slump to eight-month lows. The uptick was supported by a softer tone surrounding the US dollar, which tends to benefit the dollar-denominated commodity. Retreating US Treasury bond yields kept the USD bulls on the defensive and extended some additional support to the non-yielding yellow metal.

It is worth recalling that the yield on the benchmark 10-year US government bond soared to the highest level in a year amid expectations about a strong economic recovery. The reflation trade also forced investors to price in the possibility for an uptick in inflation, which raised doubts that the Fed would retain ultra-low rates for a longer period and dragged the XAU/USD to its lowest since June 2020 on Friday.

Meanwhile, the impressive pace of COVID-19 vaccinations and the progress in a massive US fiscal spending plan further boosted investors' confidence. In fact, the House of Representatives passed US President Joe Biden's proposed $1.9 trillion pandemic relief package on Saturday. This, in turn, led to a fresh leg up in the equity markets, which might keep a lid on any further gains for the safe-haven XAU/USD.

This makes it prudent to wait for a sustained move beyond the $1760-65 region before confirming that the commodity has bottomed out in the near-term and positioning for any further appreciating move. Market participants now look forward to the release of the US ISM Manufacturing PMI for some short-term trading impetus.

Technical levels to watch