XAU/USD remains on the defensive below $2,000, LONG view ⚡️

Gold Price Forecast: XAU/USD remains on the defensive below $2,000, downside seems limited

Gold oscillated in a narrow trading band through the early European session on Friday.
Stability in the financial markets, stronger USD acted as a headwind for the commodity.
The Ukraine crisis extended support to the safe-haven metal and limited the downside.
Gold struggled to capitalize on the overnight bounce from the $1,970 area and witnessed subdued/range-bound price move on the last day of the week. The XAU/USD seesawed between tepid gains/minor losses through the early European session and was last seen trading below the $2,000 psychological mark. Despite the fact that talks between the Russian and Ukrainian foreign ministers broke down without any notable progress, investors remain hopeful about a diplomatic solution to end the war. Russia appears to have softened its stance and said that the war could stop in a moment if Ukraine agreed to a list of demands. This optimism was evident from signs of stability in the financial markets, which, in turn, acted as a headwind for the safe-haven precious metal.

Apart from this, the underlying bullish sentiment surrounding the US dollar further weighed on the dollar-denominated XAU/USD. Following a sharp pullback from the highest level since May 2020 touched earlier this week, the USD made a solid comeback on Thursday following the release of strong US consumer inflation figures. In fact, the headline CPI accelerated to a new 40-year high in February and reinforced bets for an imminent start of the policy tightening cycle by the Fed in March. This, in turn, remained supportive of elevated US Treasury bond yields, which continued underpinning the buck. That said, the risk of a further escalation in tensions between Russia and the West extended some support to gold.

In fact, Russia approved a list of goods and equipment that will be prohibited from being exported in retaliation to the Western sanctions imposed over its military operations in Ukraine. Furthermore, US President Joe Biden is set to call for an end of normal trade relations with Russia later this Friday, alongside the Group of Seven nations and European Union leaders. Apart from this, the rapidly deteriorating global economic outlook and worries about a major inflationary shock should limit deeper losses for gold. This warrants caution before positioning for an extension of the corrective pullback from the highest level since August 2020.