- Gold corrects 1% with China and the US announcing top officials are set to meet in Switzerland this weekend.
- Strikes and counterstrikes between India and Pakistan took place in early Wednesday.
- Gold upside trend could resume in case of increasing tensions between India and Pakistan or if trade talks fail.
Gold (XAU/USD) slips over lower on Wednesday to $3,390 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: Tensions flair up between India and Pakistan
- 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: Buyers happy to buy-in
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
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
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