Gold price drops over 2% after Fed hold, US-China tariff talks boost US Dollar

NEW YORK (May &) Gold prices retreated by more than 2% on Wednesday, after the Federal Reserve (Fed) kept rates unchanged, and despite an improvement in risk appetite following the commencement of tariff talks between the United States (US) and China. At the time of writing, the XAU/USD trades at $3,371 after hitting a daily peak of $3,438.

On Wednesday, the Federal Reserve held interest rates steady at 4.25%–4.50% for a third consecutive meeting in 2025, citing growing uncertainty around the economic outlook and elevated risks to both maximum employment and price stability.

Fed Chair Jerome Powell maintained a neutral tone, stating that the current policy stance is appropriate and that the Fed is not in a hurry to adjust rates. He emphasized the central bank’s readiness to act “quickly as appropriate” if conditions change but warned that the Fed’s goals cannot be fully achieved if tariffs remain in place.

Powell added that if either side of the dual mandate veers too far off course, the Fed would evaluate which policy tools to use to rebalance. When asked which mandate—inflation or employment—requires more focus, he responded that it is too early to say.

On Tuesday, news that US Treasury Secretary Scott Bessent and China’s Vice Premier He Lifeng will meet in Switzerland calmed investors' fears about the “trade war.” Hence, the Greenback recovered some ground as traders booked profits and bought the US Dollar against its peers.

Despite this, Bullion prices are set to continue rallying amid the ongoing geopolitical conflicts between Russia/Ukraine, Israel/Hamas and India/Pakistan.

Central banks continued to add Gold to their reserves

The World Gold Council revealed that central banks from China, Poland and the Czech Republic increased their Bullion reserves in April.

Daily digest market movers: Gold rally halts as central banks continue to add Bullion to their reserves

• The Greenback’s recovery is a headwind for Bullion prices. The US Dollar Index (DXY), which tracks the buck’s value against a basket of six currencies, is up 0.13% at 99.52.
• Steady US Treasury yields have capped the Gold price rally. The US 10-year Treasury note yield is firm at 4.291%. Meanwhile, US real yields remain flat at 2.029%, as indicated by the US 10-year Treasury Inflation-Protected Securities yields.
• Data from the World Gold Council (WGC) revealed the People’s Bank of China (PBoC) added 2 tonnes to its Gold reserves in April – for the sixth consecutive month. Krishan Gopaul, Senior Analyst, EMEA, at the WGC, added, “Year-to-date net purchases now total 15 tonnes, helping to lift gold reserves to 2,294 tonnes.”
• The National Bank of Poland (NBP) increased 12 tonnes in April to 509 tonnes, while the Czech National Bank increased its reserves by 2.5 tonnes in April.
• Swap markets have so far priced in the Fed’s first 25 basis points (bps) rate cut for the July meeting, and they expect two additional reductions towards the end of the year.

FXStreet