Investing.com - With markets broadly on hold ahead of the Federal Reserve’s policy decision, gold prices dropped on Wednesday on growing hopes that the U.S.-China can take their trade dispute down a notch or two.
Gold futures for August delivery on the Comex division of the New York Mercantile Exchange, fell $3.85, or 0.3%, at $1,346.85 a troy ounce by 7:07 AM ET (11:07 GMT).
U.S. President Donald Trump had tweeted on Tuesday that he had a “very good telephone conversation with President Xi” and said trade negotiators from both sides would meet ahead of an “extended meeting” between the two leaders at the G20 summit next week.
China’s Foreign Ministry spokesman Lu Kang provided an upbeat outlook on Wednesday, indicating that history has shown that it was “possible to achieve positive outcomes” from the talks.
The de-escalation of tensions dampens appetite for the safe-haven precious metal.
Trade conflict aside, markets are focused on the upcoming Fed policy decision at 2:00 PM (18:00 GMT).
The Fed is widely expected to leave rates unchanged but also to open the door to further easing in a shift from its prior promise to be “patient” with regard to changes in policy.
Ongoing trade tensions between the U.S. and China, coupled with muted inflation data and weak business surveys, have increased the pressure for more policy easing. Markets currently put odds above 80% that the Fed will cut rates as soon as July while the chance for a total of three cuts this year is close to 50-50.
Gold generally benefits from lower interest rates that reduce the opportunity cost of holding the non-yielding bullion and analysts warn that any “surprises” in Wednesday’s message from the Fed could roil markets.
“Any sign that a Fed policy deluge is on the way could trigger one of the most significant risk revivals in some time,” said Stephen Innes, OANDA head of trading in Singapore.
In other metals trading, silver futures lost 0.4% at $14.93 a troy ounce by 7:10 AM ET (11:10 GMT).
Palladium futures traded up 1.0% at $1,488.55 an ounce, while sister metal platinum declined 0.3% to $799.30.
In base metals, copper fell 0.4% to $2.692 a pound.