Gold drops to 1-1/2 week lows, risks confirming a bearish break through $1280 support area

   •  Risk-on mood/US-China trade optimism continues to dent safe-haven demand.
   •  A goodish pickup in the US bond yields further adds to the prevalent selling bias.

Gold edged lower through the early European session on Tuesday and dropped to 1-1/2 week lows, closer to $1282-81 important horizontal support in the last hour.

The precious metal failed to capitalize on the overnight late rebound from over one-week lows and remained under some selling pressure for the fourth consecutive session, setting up for an extension of the recent rejection slide from the $1310-11 supply zone.

The recent optimism surrounding the US-China trade talks was further fueled by the US Treasury Secretary Steven Mnuchin's comments on Monday, saying that negotiations were making a lot of progress and both sides might be close to the final round of trade talks.

The same was evident from improving global risk sentiment, reinforced by the prevalent positive mood around equity markets, which coupled with a goodish pickup in the US Treasury bond yields further collaborated toward driving flows away from the non-yielding yellow metal.

Meanwhile, bearish traders seemed rather unimpressed by the prevalent US Dollar selling bias, which tends to underpin demand for the dollar-denominated commodity, albeit might turn out to be the only factor that might help limit deeper losses, at least for the time being.

In absence of any major market moving economic releases, broader market risk sentiment and any incoming trade-related headlines might continue to play an important role in influencing the price action ahead of more relevant US macro data in the latter half of this week. 

Technical levels to watch