Gold Price Analysis: XAU/USD retreats from two-month tops, back below $1950 level

Gold struggled to capitalize on its intraday positive move to near two-month tops and has now retreated to the lower end of its daily trading range, around the $1945 region.

A combination of factors assisted the precious metal to attract some dip-buying on Wednesday and quickly reverse an early slide to the $1941 area. The market started pricing in the possibility of a more expansive fiscal policy amid indications of Democratic victory in the crucial US Senate runoff elections in the stage of Georgia.

In fact, NBC News called one of the two races in favour of Democratic challenger Raphael Warnock. In the second race, Democrat rival Jon Ossof held a narrow lead over incumbent GOP Senator David Perdue. The final outcome is not expected until later on Wednesday, though the incoming updates point to a Democrat-controlled Senate.

This will allow incoming President Joe Biden to pursue his preferred economic policies, including additional stimulus measures and infrastructure spending. This, in turn, led to some fresh selling around the US dollar and turned out to be one of the key factors that extended some support to the dollar-denominated commodity.

Investors also seemed worried that a 'blue wave' could increase the prospect of tighter regulations on technology mega-caps. This was evident from a steep decline in Nasdaq futures, which sank nearly 2% in early premarket trading and further benefitted the safe-haven XAU/USD, though the uptick lacked any strong bullish conviction.

Expectations of larger government borrowing pushed the benchmark 10-year US Treasury yield beyond 1.0% mark for the first time since March. This could be the only factor capping gains for the non-yielding yellow metal. Investors also seemed reluctant to place any aggressive bets ahead of Wednesday's release of FOMC minutes.

In the meantime, the US economic docket – highlighting the release of the ADP report on private-sector employment – will be looked upon for some impetus. Apart from this, the USD price dynamics and the broader market risk sentiment might also contribute to produce some short-term trading opportunities around the XAU/USD.

Technical levels to watch