• Gold catches some bids on Tuesday and recovers further from a multi-week low.
• A softer risk tone, along with a modest USD pullback, offers support to the metal.
• Hawkish Fed expectations, elevated US bond yields should cap any further gains.

Gold reverses an intraday dip to the $1,730 area and climbs to a fresh daily high during the early North American session. The XAU/USD, for now, seems to have snapped a six-day losing streak to a nearly four-week low and is currently placed around the $1,745 region, though any meaningful upside still seems elusive.

Macroeconomic headwinds stemming from China’s COVID-zero policy - imposing snap lockdowns after just a handful of cases - continue to fuel recession fears. This, in turn, tempers investors' appetite for riskier assets, which is evident from a generally weaker tone around the equity markets and benefits the safe-haven metal. Apart from this, a modest US dollar pullback from a two-decade peak further seems to underpin the dollar-denominated gold.

The USD lost additional ground following the release of weaker-than-expected flash US PMI prints for August. That said, expectations for a more hawkish message from Fed Chair Jerome Powell at the Jackson Hole symposium on Friday favour the USD bulls. This, in turn, suggests that the path of least resistance for gold is to the downside. Even from a technical perspective, the emergence of fresh selling at higher levels validates the negative outlook.

Furthermore, firming expectations that the Fed would continue to tighten its monetary policy leads to an extended sell-off in the US fixed income market. This, in turn, lifts the yield on the benchmark 10-year US government bond to a nearly one-month high and exerts some downward pressure on the non-yielding yellow metal. That said, a combination of factors offers some support to gold and helps limit the downside, at least for the time being.

Hence, any subsequent move up might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly near the $1,754-$1,755 horizontal support breakpoint. Gold seems poised to prolong its recent retracement slide from the $1,808 area, or over a one-month high touched earlier this August. The downward trajectory could drag spot prices towards the $1,710 intermediate support en route to the $1,700 round-figure mark.

Technical levels to watch