Gold prices fell more than 1% on Wednesday, as optimism surrounding US-China trade talks weighed on the safe-haven metal. This fall in gold prices comes ahead of the Federal Reserve’s key rate decision later today.
Spot gold was down 1.2%, trading at $3,388.49 an ounce at 1141 GMT, following a sharp rise in the previous session. “Reports of a potential meeting between U.S. and Chinese officials this week could bolster sentiment if confirmed by both sides,” said Zain Vawda, analyst at MarketPulse by OANDA.
US-China Trade Talks Weigh on Gold Prices
Reports emerged late yesterday of a potential meeting between U.S. Treasury Secretary Scott Bessent and chief trade negotiator Jamieson Greer. They are set to meet top Chinese economic official He Lifeng in Switzerland this weekend to discuss tariffs. This news has sparked optimism, as a resolution to the ongoing trade tensions could have far-reaching effects on global markets.
Last month, the U.S. and China imposed reciprocal tariffs on each other’s goods. This triggered a trade war that stoked global recession fears and sent investors rushing to gold as a safe-haven asset. However, the recent trade talks have reduced the appeal of gold for now.
Gold Prices Fall Ahead of Fed Decision
Market focus is now shifting to the Federal Reserve’s policy announcement, set for 1800 GMT. The central bank is widely expected to keep interest rates steady. Investors will be closely watching for any hints about future rate cuts. Currently, markets imply only a 30% chance of a rate cut in June, according to the CME FedWatch Tool.
Gold is traditionally viewed as a hedge against economic uncertainty. It tends to perform well in a low interest rate environment. The Fed’s stance could be pivotal in shaping the precious metal’s short-term direction.
Geopolitical Tensions Could Drive Gold Prices Up
Meanwhile, tensions between India and Pakistan have escalated. India attacked Pakistani Kashmir on Wednesday. Pakistan claimed to have shot down five Indian fighter jets, marking the worst fighting between the two nuclear-armed countries in more than two decades.
If the conflict intensifies, gold is likely to see an increase in demand as a safe-haven asset, further supporting prices. “Should the current friction between India and Pakistan escalate into a more serious conflict, gold is likely to attract increased safe-haven demand,” Vawda noted.
Other Precious Metals React
Elsewhere in the precious metals market, spot silver slipped 1% to $32.91 an ounce. Platinum eased by 0.3%, trading at $988. Palladium, however, edged up by 0.7%, reaching $981.25 an ounce.
Final Thoughts
The decline in gold prices is largely attributed to renewed optimism around US-China trade talks, which has reduced the demand for safe-haven assets. However, geopolitical tensions between India and Pakistan, along with the upcoming Federal Reserve decision, could offer new drivers for gold’s price action. Traders will need to stay alert to these developments as they unfold.