Gold Price Analysis: XAU/USD trades near session tops, just above $1730 level

• Gold edged higher on Monday amid a modest pullback in the US Treasury bond yields.
• The risk-on mood, an uptick in the USD kept a lid on any meaningful gains for the metal.

Gold traded with a mild positive bias through the first half of the European session and was last seen hovering near the $1730 region, up around 0.55% for the day.

The precious metal built on the previous session's goodish rebound from levels just below the $1700 mark and gained some follow-through traction on the first day of the next trading week. This marked the second consecutive day of a positive move and was exclusively sponsored by a modest pullback in the US Treasury bond yields, which tends to drive flows towards the non-yielding yellow metal.

Investors remain optimistic about the US economic outlook amid the impressive pace of COVID-19 vaccinations. This, along with the passage of a massive US stimulus package, has been fueling the reflation trade and forced investors to start pricing in a possible uptick in US inflation. This, in turn, pushed the yield on the benchmark 10-year US government bond to over one-year tops on Friday.

However, expectations that the Fed could take some action to curb the sharp rise in long-term borrowing cost provided some respite to bond traders. Hence, the uptick could be solely attributed to some short-covering ahead of this week's FOMC monetary policy meeting. That said, a combination of factors held bulls from placing aggressive bets and kept a lid on any strong gains for the XAU/USD.

The prospects for a faster US economic recovery from the pandemic continued underpinning the US dollar, which could weigh on the dollar-denominated commodity. Apart from this, the underlying bullish sentiment in the financial markets – as depicted by the upbeat tone around the equity markets – might further collaborate to cap the upside for the safe-haven XAU/USD, at least for the time being.

Market participants now look forward to the US economic docket, featuring the only release of the Empire State Manufacturing Index for some impetus later during the early North American session. Traders will further take cues from the broader market risk sentiment, the US bond yields and the USD price dynamics in order to grab some short-term opportunities.

Technical levels to watch