- Gold drops over 1% as China and the US announced that top officials are set to meet in Switzerland this weekend to talk about trade.
- China issued additional stimulus to support its economy, a positive for Gold..
- Gold upside trend could resume in case of increasing tensions between India and Pakistan or if trade talks fail.
Gold (XAU/USD) drops by more than 1% on Wednesday to $3,391 at the time of writing, ahead of the Federal Reserve (Fed) rate decision and after statements from both China and the United States (US) confirmed that trade talks will kick off this weekend. US Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer will travel later this week to Switzerland for trade talks with the Chinese delegation, led by Vice Premier He Lifeng, seeking to de-escalate a tariff standoff that has threatened to hammer both economies. In a first phase, no trade talks as such will be held, though rather talks to de-escalate the situation, according to Bessent on Fox News.
The news comes ahead of the Federal Reserve rate decision, which is set to take place on Wednesday during the American session. According to the CME Fedwatch tool, there is a 95.6% probability of a no-change in interest rates, so a rate cut would be a big surprise. Despite pressure from US President Donald Trump on the Fed and its Chairman Jerome Powell to cut rates, it does not look like the Fed will give in to any political demands and will keep rates steady while awaiting the impact of tariffs on the US economy and inflation.
Daily digest market movers: Switzerland meeting offsets India-Pakistan conflict
- Gold price snaps a two-day winning streak, as signs of progress on US-China trade talks curbed demand for havens even as military hostilities between India and Pakistan escalated overnight, Bloomberg reports.
- Pakistan said it shot down five Indian airplanes and took soldiers prisoner in retaliation for Indian military strikes early on Wednesday. The prospect of a war between the nuclear-armed neighbors would typically be positive for Gold, although any added haven demand is, at this stage, being canceled out by the trade talks optimism, Bloomberg reports.
- The boss of a US-listed mining company has warned the industry to remain “disciplined” after the price of gold surged to a record high, urging executives to avoid a repeat of the mistakes, the FT reports.
Gold Price Technical Analysis: Again talks, no deals
Wednesday’s Gold price correction looks granted given that a first step has been taken with both China and the US coming to the negotiating table. However, that does not mean this is the end of the uptrend for Gold and that the precious metal will dip below $3,000 soon. The talks are in a first phase and appear to be only de-escalatory, opening up tail risks for headlines that these talks are not going smooth or could even fall apart.
On the upside, the R1 resistance at $3,469 looks quite far away, though still could see a test if contradicting headlines emerge on the US-China talks or if the Fed meeting holds a surprise. Should some follow-through come, the R2 resistance at $3,508 will come after a fresh all-time high has been set with the break of the current one at $3,500.
On the downside, the Pivot Point at $3,396 is the first level to watch in terms of a daily close below or above the level. Further down, the daily S1 support comes in at $3,358. The technical level at $3,245 should do the trick and hold in case of any sudden reversals if the S2 support at $3,285 does not prove to be strong enough.
XAU/USD: Daily Chart
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.