Gold prices fell more than 2% on Wednesday as U.S. President Donald Trump backed down from threats to dismiss Federal Reserve Chair Jerome Powell and expressed optimism for a trade deal with top metals consumer China, denting bullion's safe-haven appeal.

Spot gold declined 2.2% to $3,308.81 an ounce as of 0704 GMT. U.S. gold futures shed 2.9% to $3,320.30.

Hopes for a U.S.-China trade deal and Trump's softened stance toward Powell "caused the sell-off in gold price to hit a kind of a very extreme oversold level in the short term perspective here," said Kelvin Wong, senior market analyst, Asia Pacific at OANDA.

U.S. stocks and the dollar rebounded after Trump withdrew his threats to fire Powell after days of intensifying criticism of the central bank chief for not cutting interest rates.

A stronger dollar makes gold more expensive for overseas buyers.

Trump also expressed optimism that a trade deal with China could "substantially" reduce tariffs on Chinese imports, hinting that the final deal will not "be anywhere near" current tariff rates.

U.S. Treasury Secretary Scott Bessent said he believes there will be a de-escalation in U.S.-China trade tensions, but negotiations with Beijing have not yet started and would be a "slog".

"There is no form of a bullish exhaustion yet from the upper bond level so there could still be potential movement on the upside for the gold," ONADA's Wong said.

Fed Bank of Minneapolis President Neel Kashkari said it is too soon to know how short-term borrowing costs may need to be adjusted for Trump's tariffs and their expected impact on inflation and the economy.

Gold, considered a hedge against global uncertainty and inflation, hit its 28th record high this year, surging to $3,500 for the first time on Tuesday.

JP Morgan said it expects prices to cross the $4,000-per-ounce milestone next year.

Spot silver rose 0.8% to $32.79 an ounce, platinum gained 0.2% to $960.54 and palladium held steady at $935.15.

Source: Reuters