Gold rebounds sharply from 1-week lows; will it sustain?

   •  A combination of factors kept exerting downward pressure on Tuesday.
   •  Short-covering helps rebound sharply and recover a major part of early losses.

Gold continued losing ground through the mid-European session and tumbled to a one-week low in the last hour, albeit quickly recovered thereafter.

The precious metal extended overnight retracement slide from near two-week tops and was further weighed down by a combination of factors. Resurgent US Dollar demand was seen as one of the key factors prompting some fresh selling around dollar-denominated commodities - like gold.

This coupled with positive trading sentiment around European equity markets, pointing to improving risk appetite, further dented the precious metal's safe-haven appeal. The risk-on mood was reinforced by an uptick in the US Treasury bond yields, which exerted some additional downward pressure on the non-yielding yellow metal. 

Meanwhile, the latest leg of sharp rebound over the past hour or so lacked any obvious catalyst and hence, it remains to be seen if the up-move is backed by any genuine buying or is solely led by some short-covering amid absent market moving economic releases from the US.

Technical levels to watch

Any subsequent up-move is likely to confront fresh supply near $1260 level, above which the commodity is likely to aim back towards retesting overnight swing high resistance near the $1265-66 region.

On the flip side, the $1247-46 region might continue to protect the immediate downside, which if broken might turn the metal vulnerable to slide back towards challenging YTD lows support near the $1238 area.