Gold trades with modest losses, holds above $1700 amid escalating US-China tensions

• The upbeat market mood, a modest USD uptick exerted some pressure on gold.
• Worsening US-China relations should help limit deeper losses, at least for now.

Gold dropped to fresh two-week lows during the early European session and was last seen trading with modest losses, just above the $1700 mark.

The commodity struggled to capitalize on its early uptick to the $1716 area, instead met with some fresh supply and drifted into the negative territory for the third consecutive session. The downtick, also marking the metal's fourth day of a negative move in the previous five, was sponsored by the upbeat mood around the global equity markets and a goodish pickup in the US dollar demand.

The positive news of a potential COVID-19 vaccine added to the recent optimism over the re-opening of economies across the world and raised hopes for a sharp V-shaped recovery for the global economy. This, in turn, boosted investors' confidence and the same was evident from some follow-through rally in the global equity markets, which undermined the precious metal's perceived safe-haven demand.

Meanwhile, the US dollar was back in demand on Wednesday and further collaborated towards exerting some pressure on the dollar-denominated commodity. However, concerns about a further escalation in diplomatic tensions between the US and China might help limit deeper losses for the yellow metal.

It is worth reporting that the US President Donald Trump on Tuesday indicated a strong reaction to China's planned national security law for Hong Kong and added that it would be announced by the end of the week. China was quick to retaliate and threatened countermeasures against any US actions.

From a technical perspective, the commodity was seen hovering around the lower end of over one-month-old ascending trend-channel. This makes it prudent to wait for some follow-through selling, possibly below the $1700 mark, before traders start positioning for any further near-term depreciating move.

Technical levels to watch

XAU/USD