Gold prices faced significant selling pressure early on Wednesday, correcting sharply from two-week highs of $3,435. The retreat came amid renewed optimism about upcoming US-China trade talks and profit-taking ahead of the US Federal Reserve’s policy announcement.
Gold Pulls Back Amid Trade Optimism and Profit-Taking
Late Tuesday, the White House revealed that US Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer would attend trade talks in Geneva from May 9 to 12 with Chinese Vice Premier He Lifeng. The talks aim to ease tensions in the ongoing trade war between the US and China, the world’s two largest economies.
This news led to a positive market reaction in Asia on Wednesday, as investors reduced their safe-haven flows, decreasing demand for gold. The US Dollar (USD) strengthened, with optimism surrounding US-China trade easing concerns over global economic growth.
Meanwhile, traders engaged in profit-taking after gold’s recent rally, preparing for the Federal Reserve’s policy decision and Chairman Jerome Powell’s subsequent press conference. With a no-rate-change decision fully expected, Powell’s comments will be critical in shaping market expectations regarding potential rate cuts later this year.
Following strong US labor market data and business PMIs, market expectations for a June rate cut have diminished, with major institutions like Goldman Sachs and Barclays now predicting a rate cut in July instead.
Fed Decision and Geopolitical Tensions Could Influence Gold’s Path
While Powell is likely to maintain the Fed’s cautious stance, acknowledging uncertainty over the impact of US tariffs, any acknowledgment of economic resilience could signal a shift toward a more hawkish tone, pushing back rate cut expectations and strengthening the USD. In this scenario, gold could face additional downward pressure, extending its recent correction.
However, gold prices could experience a fresh rally if the Fed signals a June rate cut due to concerns about the economic outlook. Meanwhile, gold’s downside may be limited by rising global geopolitical tensions. Israel’s security Cabinet approved a plan to expand its military operations in Gaza, while Russia and Ukraine remain locked in conflict, with escalating military actions in Pakistan and India further adding to global uncertainty.
Gold Price Technical Analysis
From a technical perspective, gold faced rejection just below the channel support, which now serves as resistance, retreating toward initial support at the $3,350 level. The 21-day Simple Moving Average (SMA) at $3,283 offers further support for gold buyers. Deeper declines could test the May 2 low of $3,223.
Despite this pullback, the 14-day Relative Strength Index (RSI) remains above the midline at 61.50, suggesting that any dips could be met with buying interest.
For gold to regain its bullish momentum, it must establish a strong foothold above the recent two-week high of $3,435. The next upside target lies at the channel resistance near $3,494, where a potential record high could come into play.