Despite the escalation of the India-Pakistan military conflict, positive signals from the China-US trade negotiations significantly eased the market's risk aversion sentiment, causing gold prices to fall sharply, ending the previous two-day upward trend.

After spot gold (XAUUSD) prices rose nearly 6% over the past two trading days, the daily decline reached 1.6% at one point. This is the first negotiation between China and the United States since the Trump administration imposed large-scale tariffs on China.

On May 7, the Chinese Ministry of Foreign Affairs announced that Vice Premier He Lifeng will visit Switzerland from May 9 to 12 and meet with US Treasury Secretary Yellen. The market is optimistic that the world's two largest economies will reach an agreement, but China has made it clear that it will not give up its principled position and international fairness in order to reach an agreement. As a result, the U.S. dollar rose against most major currencies.

In South Asia, Pakistan said it shot down five Indian warplanes and captured several soldiers in response to earlier Indian military operations. Normally, tensions between the two nuclear-armed neighbors would push up gold prices, but this time the market was more focused on the optimistic prospects of the China-US negotiations, and safe-haven demand was partially offset.

This year, affected by Trump's radical trade policies and geopolitical uncertainties, investors flocked to the gold market for safe havens, pushing gold prices up nearly 30% in total and hitting an all-time high of $3,500 an ounce in April, although it has recently fallen back. Speculative demand in the Chinese market and gold purchasing behavior by central banks of various countries also provide support for gold prices.

Additionally, silver prices fell, while platinum and palladium prices rose slightly. The Federal Reserve will announce its interest rate decision on Wednesday evening, and the market expects that the interest rate will remain unchanged as it needs to further observe the impact of trade policy on the economy. Generally speaking, a low interest rate environment is more favorable for gold.