Gold drops to multi-day lows, manages to hold above $1600 mark

Gold traded with a mild negative bid through the early European session and dropped to multi-day lows in the last hour, albeit has still managed to hold above the $1600 mark.

The precious metal extended its sideways consolidative price action on Tuesday and remained confined well within a broader trading range held over the past five trading sessions or so as investors awaited a fresh catalyst before positioning for the next leg of a directional move.

Against the backdrop of the Fed's unlimited QE and a massive $2.2 trillion US economic stimulus package, investors' sentiment got an additional boost from a sharp rebound in the Chinese manufacturing sector activity boosted investors' confidence on Tuesday.

This was evident from a further recovery in the global risk sentiment and reinforced by a goodish pickup in the US Treasury bond yields. This eventually dampened demand for traditional safe-haven assets and exerted some pressure on the non-yielding yellow metal.

Meanwhile, the US dollar added to the overnight recovery gains and further undermined demand for the dollar-denominated commodity. However, concerns over the economic fallout from the coronavirus pandemic extended some support.

This coupled with the ever-increasing number of confirmed coronavirus cases and tightening lockdowns across the world should also help limit deeper losses, at least for the time being, making it prudent to wait for a sustained break through the recent trading range.

Moving ahead, market participants now look forward to the US economic docket – featuring the release of Chicago PMI and Conference Board's Consumer Confidence index – in order to grab some short-term trading opportunities.

Technical levels to watch