Gold Price Analysis: XAU/USD flirts with three-day lows, around $1710 area

Gold edged lower through the early European session and dropped to three-day lows, around the $1710-09 region in the last hour.

The precious metal extended the overnight retracement slide from the $1740 supply zone and witnessed some follow-through selling on the last trading day of the week. This marked the second straight day of a negative move and was sponsored by a combination of factors, though the cautious mood helped limit the downside.

The relief in the US fixed income market is starting to disappear and a modest uptick in the US Treasury bond yields drove some flows away from the non-yielding yellow metal. As bond yields creep higher, the US dollar was back in demand and exerted some additional pressure on the dollar-denominated commodity.

Meanwhile, rising US bond yields were now seen testing investors' nerves. This was evident from an intraday pullback in the US equity futures, which extended some support to the safe-haven XAU/USD and might help limit the downside. The bond market remains a key focal point as another sell-off could derail the bullish sentiment.

Against the backdrop of optimism over the impressive pace of COVID-19 vaccinations, Wednesday's mixed US consumer inflation figures eased concerns about rising inflation and boosted investors' confidence. The sentiment got an additional boost after US President Joe Biden signed a much-awaited $1.9 trillion stimulus bill into law.

It will now be interesting to see if the downtick marks the end of the recent bounce from multi-month lows or is seen as a buying opportunity. Traders now look forward to the US economic docket – featuring the February Producer Price Index and the preliminary estimate of the Michigan Consumer Sentiment Index for March – for a fresh impetus.

Technical levels to watch