PRECIOUS-Gold retreats on US-China trade talk optimism; Fed verdict eyed

By Brijesh Patel

May 7 (Reuters) - Gold prices fell more than 1% on Wednesday as hopes around trade talks between the United States and China weighed on the safe-haven metal ahead of a Federal Reserve rates decision later in the day.

Spot gold XAU= was down 1.2% at $3,388.49 an ounce as of 1141 GMT, after a sharp rise in the previous session.

U.S. gold futures GCcv1 lost 0.8% to $3,396.70.

"Late yesterday, reports emerged of a potential meeting between U.S. and Chinese officials this week, which could bolster sentiment if confirmed by Chinese and U.S. authorities," said Zain Vawda, analyst at MarketPulse by OANDA.

U.S. Treasury Secretary Scott Bessent and chief trade negotiator Jamieson Greer will meet top Chinese economic official He Lifeng in Switzerland this weekend to discuss tariffs.

The U.S. and China imposed tit-for-tat tariffs last month, triggering a trade war that stoked global recessionary fears and prompting investors to take refuge in safe-haven assets such as gold.

Market focus now shifts to the Fed policy announcement at 1800 GMT. The central bank is widely expected to keep rates steady but investors will look for signals on future cuts.

Markets now imply only a 30% chance of a Fed rate cut in June, according to the CME FedWatch Tool. FEDWATCH

Gold, traditionally seen as a hedge against economic and political uncertainties, tends to thrive in a low interest rate environment.

On the geopolitical front, India attacked Pakistan and Pakistani Kashmir on Wednesday and Pakistan said it had shot down five Indian fighter jets in the worst fighting in more than two decades between the two nuclear-armed enemies.

"If the current friction between India and Pakistan escalates into a more serious conflict, gold is likely to attract increased safe-haven demand, which could support prices further," Vawda said.

Elsewhere, spot silver XAG= slipped 1% to $32.91 an ounce, platinum XPT= eased 0.3% to $988 and palladium XPD= edged 0.7% higher to $981.25.