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Gold falls over 1% as China and the US plan high-level trade talks in Switzerland this weekend.
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China introduces additional economic stimulus, supporting gold prices.
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Gold's upward trend may resume if India-Pakistan tensions escalate or trade talks collapse.
Gold (XAU/USD) dropped over 1% on Wednesday to $3,391 ahead of the Federal Reserve's (Fed) rate decision, following announcements from both China and the United States (US) confirming trade talks this weekend. US Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer will travel to Switzerland later this week for discussions with the Chinese delegation, led by Vice Premier He Lifeng, aimed at easing tariff tensions that threaten both economies. Initially, the focus will be on de-escalation rather than formal trade negotiations, according to Bessent on Fox News.
The drop in gold prices comes as markets anticipate the Fed's rate decision, expected during the American session on Wednesday. The CME FedWatch tool indicates a 95.6% probability of no rate change, meaning a rate cut would come as a major surprise. Despite pressure from US President Donald Trump on the Fed and Chairman Jerome Powell to reduce rates, the Fed is likely to maintain current levels while assessing the economic impact of tariffs and inflation.
Daily Digest: Market Movers: Switzerland Meeting Offsets India-Pakistan Conflict
- Gold prices have snapped a two-day winning streak as optimism surrounding US-China trade talks has reduced demand for safe-haven assets, despite escalating military tensions between India and Pakistan, Bloomberg reports.
- Pakistan announced that it had shot down five Indian aircraft and captured soldiers in retaliation for Indian military strikes earlier on Wednesday. Typically, the threat of conflict between the nuclear-armed neighbors would boost gold demand. However, optimism over the upcoming trade discussions is currently outweighing haven buying, according to Bloomberg.
- Meanwhile, the CEO of a US-listed mining company has urged the industry to remain “disciplined” after gold prices surged to a record high, cautioning executives against repeating past mistakes, the Financial Times reports.
Gold Price Technical Analysis: Talks but No Deals
Wednesday’s gold price correction appears justified as the initial step has been taken with both China and the US agreeing to come to the negotiating table. However, this does not necessarily mark the end of the bullish trend for gold, nor does it indicate that the precious metal will soon dip below $3,000. The current phase of talks between the two economic powers is primarily focused on de-escalation rather than making concrete trade agreements. This situation leaves room for uncertainty, as there remains a risk that the discussions may not proceed smoothly or could even collapse entirely.
On the positive side, the R1 resistance level at $3,469 seems relatively distant at the moment, but it could still be tested if conflicting news arises from the US-China negotiations or if the Federal Reserve meeting delivers an unexpected outcome. Should the upward momentum continue, the next significant resistance would be at R2, located at $3,508, which would come into play after breaking the current all-time high at $3,500.
Conversely, on the downside, the Pivot Point at $3,396 will be the initial level to monitor, as a daily close above or below this point could indicate the market's near-term direction. Should prices decline further, the daily S1 support level at $3,358 would act as the next line of defense. In case of a more significant pullback, the S2 support at $3,285 needs to hold to prevent a sharper fall. If this support level fails, the critical support zone at $3,245 would become essential to maintaining the overall bullish structure, especially in the event of any sudden reversals.
