On Tuesday, under the pressure of rising USD and U.S. Treasury Notes Yield, spot Gold prices fell, with strong U.S. retail sales data causing Gold prices to drop to this week's low of $2633 per ounce. On Wednesday, investors are focused on the Federal Reserve's last policy meeting of the year.

The USD rose by 0.1%, making Gold more expensive for holders of other currencies, while the U.S. 10-Year Treasury Notes Yield hovered near a four-week high.

The U.S. retail sales growth in November exceeded expectations, adding fuel to the inflation data rebound in recent months, and suggesting that the Federal Reserve may pause interest rate cuts in January next year.

Data released by the U.S. Department of Commerce on Tuesday showed that unadjusted retail sales in November rose by 0.7% month-on-month, reaching a new high since September, and exceeding the expected 0.6%. Retail sales data for the previous two months was revised up, with October's data corrected from a 0.4% month-on-month increase to 0.5%.

After the U.S. retail sales data was released, spot Gold fell sharply, hitting a low of $2632.91 per ounce.

Subsequently, Gold prices recovered some ground, closing down 0.24% at $2645.90 per ounce on Tuesday.

The Federal Reserve will announce its policy decision on Wednesday, with the market widely expecting a 25 basis points rate cut. The Federal Reserve's updated economic forecast and dot plot will also be a market focus, as they may reshape expectations for interest rate trajectories in 2025 and 2026.

Forex.com market analyst Fawad Razaqzada stated: "So the question is, will the Federal Reserve be more hawkish or dovish than the market currently expects? Due to Trump's agenda, the market expects the Federal Reserve to be more cautious about further rate cuts at this stage."

FXStreet Analyst Christian Borjon Valencia pointed out that after the strong retail sales data in the USA dimmed expectations for an aggressive easing policy from the Federal Reserve next year, Gold prices dropped to a weekly low of $2,633 per ounce on Tuesday. Currently, investors are focusing on the Federal Reserve's policy statement.

Valencia wrote that the Federal Reserve has begun a two-day meeting, which is expected to announce a 25 basis point rate cut on Wednesday. The market has already priced in this decision, but participants are looking for the Summary of Economic Projections (SEP) and the dot plot. This will provide investors with the Federal Reserve's rate path for 2025.

OANDA MarketPulse market analyst Zain Vawda said, "As we approach the Federal Reserve meeting, the risks for Gold actually lean towards the downside."

The "FedWatch Tool" from CME Group shows that traders expect a 99% likelihood of a 25 basis point rate cut from the Federal Reserve on Wednesday. Additionally, investors are betting that the Federal Reserve will cut rates by 100 basis points in 2025.

Israel and Hamas may soon reach a ceasefire agreement in Gaza.

In addition to the strong retail sales data from the USA, reports that Israel and Hamas may soon reach a ceasefire agreement in Gaza have also dampened the safe-haven Bids for Gold. Gold has always been seen as a safe investment during times of geopolitical uncertainty.

The latest report from Reuters in the United Kingdom stated that sources indicated on Tuesday that as talks held in Cairo are progressing, Israel and Hamas may sign a ceasefire agreement in the coming days, ending the war in Gaza and releasing hostages held by Hamas.

(Screenshot source: Reuters)

Recently, the USA government, with the involvement of mediators from Egypt and Qatar, has made significant efforts to advance ceasefire negotiations before President Joe Biden leaves office next month.

White House spokesman John Kirby stated in an interview with Fox News: "We believe - as the Israelis have also said - that we are getting closer to the goal, without a doubt, and we believe this, but we also maintain a cautious optimism."

Sources indicate that a ceasefire agreement could be reached in a few days, which would stop the fighting and release hostages held by Hamas in exchange for Palestinian prisoners detained in Israeli jails.

Hamas stated in a declaration that an agreement could be possible if Israel stops setting new conditions.

A Palestinian official close to the mediation efforts indicated that the negotiations are serious, with every word being discussed.

Officials from the USA and Israel have increasingly expressed optimism that the negotiations mediated by Egypt and Qatar may reach an agreement by the end of this month, but they also warned that the negotiations could fail.

How to trade gold?

FXStreet Analyst Christian Borjon Valencia noted that the upward trend in Gold remains unchanged, but the outlook is slightly tilted downward in the short term. Gold prices have been trapped in a range of $2602-$2670 per ounce, constrained by the 100-day simple moving average (SMA) and the 50-day simple moving average.

Valencia stated that if the Gold price falls below the 100-day moving average, the next Resistance will be $2,600/ounce. If the Gold price weakens further, the next Resistance will be the volatility low of $2,536/ounce from November 14, before likely challenging the high of $2,531/ounce from August 20.

(Spot gold daily chart source: FXStreet)

On the other hand, Valencia added that conversely, if the Gold price rebounds and breaks through $2,650/ounce and maintains above that level, the next Resistance will be the 50-day moving average at $2,670/ounce, followed by $2,700/ounce.