Gold dips as US-China trade talk euphoria offsets India-Pakistan escalation

LONDON (May 7) 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. 

FXStreet