Gold. Picture: REUTERS
Gold. Picture: REUTERS

Bengaluru — Gold prices fell on Wednesday as optimism over China-US trade talks and hopes of a rate cut from central banks hit demand for bullion ahead of the US Federal Reserve's monetary policy decision later in the day.

Spot gold fell 0.3% to $1,342.75 per ounce as of 11.26am GMT. US gold futures slipped 0.3% to $1,346.30 per ounce.

"Donald Trump's tweet that he will meet Xi Jinping has created speculation in the market that there might be some solution on the trade war," said Jigar Trivedi, a commodities analyst at Anand Rathi Shares & Stock Brokers. "That has supported global markets and equities have risen."

US President Donald Trump said on Tuesday he had spoken to Chinese President Xi Jinping and that the two leaders' teams would restart trade talks after a long lull, in order to prepare for a meeting at the Group of 20 (G20) summit later in June.

World stocks held near two-week highs on Wednesday as investors bet on a worldwide wave of central bank stimulus, with expectations building that the US and the eurozone may deliver interest-rate cuts as early as July.

All eyes are now on the Fed, which is scheduled to release a statement at 6pm GMT, followed by a media conference by chair Jerome Powell.

"Tonight, though, there won't be a rate cut; there will be groundwork for future rate cuts. Markets are focusing on that too," Trivedi said, adding gold was seeing some profit booking ahead of the event.

The Fed is widely expected to stand pat on monetary policy this time, but open the door for an interest-rate cut at its next meeting in July.

Lower interest rates reduce the opportunity cost of holding nonyielding bullion, which had soared to a more than 14-month high of $1,358.04 on Friday.

"A major driver of the gold price rally since the fourth quarter of 2018 has been the Fed's pivot from expecting rate hikes to expecting cuts…. We expect market participants to be disappointed by the Fed's press conference on Wednesday. This would pressure gold prices," Societe Generale said in a note.

Denting the metal's appeal, the dollar index held near a more than two-week high.

Among other precious metals, silver dipped 0.5% to $14.93 per ounce, while platinum edged slightly lower to $794.88. Palladium gained 0.7% to $1,489.80 per ounce, after hitting its highest since March 27 at $1,496.51 earlier in the session.