Gold holds weaker below $1340 level, downside seems limited

   •  An uptick in the US bond yields prompts some selling.
   •  Risk-off mood/weaker USD might help limit downside.

Gold held on to its weaker tone through the early European session and eroded a part of previous session's strong up-move.

The precious metal rallied around 1.2% on Monday and was being supported by reviving safe-haven demand. China's retaliatory tariffs on US food imports revived fears of a full-blown trade war between the world's two largest economies and triggered a fresh wave of sell-off in the US equity markets. 

However, some renewed uptick in the US Treasury bond yields, which tends to drive flows away from the non-yielding yellow metal, capped any additional gains and prompted some long-unwinding trade on Tuesday.

Meanwhile, traders seemed to have largely shrugged off a fresh US Dollar weakness, which tends to underpin demand for dollar-denominated commodities - like gold, but might now contribute towards limiting further downside. 

Later in the day, comments by FOMC members - Minneapolis Fed President Neel Kashkari and Governor Lael Brainard, would be scrutinized for some clues over the central bank's monetary policy outlook and might influence the commodity's price action ahead of this week's important macroeconomic releases, including the keenly watched US monthly jobs report (NFP).

Technical levels to watch

A follow-through weakness below $1335 level could accelerate the fall back towards $1330 level before the metal eventually drops back to $1324 horizontal support. On the upside, $1342-45 area now seems to act as an immediate resistance, above which the commodity is likely to aim towards challenging $1353 supply zone.