Gold erases daily highs, drops below $1300

• Flight-to-safety boosts the demand for Gold on Tuesday.
• US Dollar Index loses momentum before testing the 95 handle.
• Wall Street points to a weak opening.

After having a difficult time finding direction on Monday, the XAU/USD pair has gained traction on Tuesday with the precious metal finding demand as a safe-haven in the risk-off market environment. Following the upsurge to $1307, the troy ounce of gold has gone into a consolidation phase in the last couple of hours and was last seen trading at $1298, where it was virtually unchanged on the day.

The ongoing political drama in Italy seems to be weighing on the market sentiment and the European currencies for the second day in a row. In fact, the XAU/EUR pair has advanced to its highest level in nearly a year at €1133, supporting the XAU/USD pair's rise as well.

On the other hand, the greenback added to its recent gains against its rivals on Tuesday and made it difficult for gold to stretch higher. The US Dollar Index has recently refreshed its best level of the year at 94.98. Ahead of a couple of low-tier macroeconomic data releases from the United States, the DXY is preserving its daily gains at 94.75 (+ 0.4%). 

Technical outlook

The XAU/USD pair has tested the critical 200-DMA level, which is located at $1307, three times in the last four days and failed to break it. With a decisive rise above that level, more buyers could come in and help the pair extend its gains toward $1319 (50-DMA) ahead of $1332 (Apr. 24 high). On the flip side, $1300 (psychological level) could be seen as the first short-term technical support before $1292 (May 24 low) and $1282 (May 21 low).