• A combination of factors assisted gold to gain some positive traction on Tuesday.
• A softer risk tone, sliding US bond yields extended some support to the commodity.
• A modest pickup in the USD demand kept a lid on any further gains for the metal.

Gold held on to its modest intraday gains through the early European session, albeit lacked any strong follow-through buying. The commodity was last seen trading around the $1,732-33 region, just below the two-week tops touched earlier this Tuesday.

Following the previous day's directionless price moves, the XAU/USD regained positive traction on Tuesday and built on its recent bounce from multi-month lows, around the $1,677-76 region. The uptick was supported by a generally softer risk tone, which tends to benefit the safe-haven precious metal.

Apart from this, the ongoing decline in the US Treasury bond yields further drove flows towards the non-yielding yellow metal. That said, a modest pickup in the US dollar demand held bulls from placing any aggressive bets and kept a lid on any meaningful upside for the dollar-denominated commodity.

Investors remained optimistic about the US economic outlook amid the impressive pace of coronavirus vaccinations and US President Joe Biden's infrastructure spending plan of more than $2 trillion. This, along with rising bets for an earlier than expected Fed rate hike, further underpinned the USD.

The reflation trade has been fueling speculations for an uptick in US inflation and raised doubts that the Fed will be able to retain ultra-low interest rates for a longer period. This should help limit any further decline for the US bond yields and further collaborate to cap gains for the XAU/USD.

There isn't any major market-moving US economic data due for release on Tuesday. Hence, the USD price dynamics and the US bond yields might provide some impetus. Apart from this, the broader market risk sentiment will also be looked upon for some trading opportunities around the XAU/USD.

Technical levels to watch