On Monday, gold prices fell below $2,630 per ounce, ending a four-session streak of gains. The decline was attributed to the strengthening of the US dollar, following a statement from President-elect Donald Trump threatening to impose 100% tariffs on BRICS countries. This move sparked renewed concerns among investors about rising global tensions, leading them to flock towards the US dollar as a safer asset, putting downward pressure on gold.

US Dollar and Tariff Threat Impact on Gold

The US dollar’s strength in the market is mainly driven by Trump’s tariffs on BRICS countries, which raised fears of escalating trade tensions. As the dollar gains ground, gold, traditionally priced in US dollars, becomes more expensive for holders of other currencies, leading to a dip in demand and a subsequent fall in prices.

Investor Focus on Upcoming US Economic Data

As the dollar continues to firm, investors are now turning their attention to upcoming US economic reports for further clues about the Federal Reserve's stance on interest rates. Key data reports include:

• Job openings
• ADP employment report
• Payrolls report

These reports are expected to give insights into the health of the US labor market and potentially influence the Fed’s next moves on interest rates. Notably, last week’s data showed that progress in reducing US inflation has stalled, which suggests that the Federal Reserve may slow the pace of rate cuts, leading to expectations of a more gradual easing of monetary policy.

Market Expectations for Fed Rate Cuts

Currently, markets are pricing in a 65% chance of a 25 basis points rate cut at the Fed’s meeting later this month. However, the overall outlook for rate cuts in 2025 is limited, with only two additional rate cuts expected throughout the year. This reflects a cautious approach from the Fed as it navigates inflation concerns and broader economic growth.

Geopolitical Developments: Israel and Hezbollah Truce

On the geopolitical front, a truce between Israel and the Iran-backed Hezbollah seemed to be holding, despite mutual accusations of ceasefire violations. This easing of tensions in the Middle East provided some stability in the market, although geopolitical risk remains a factor to watch for investors.

Conclusion

The gold market saw a notable drop, driven primarily by the strengthening US dollar amid global trade concerns and geopolitical tensions. Investors are now focusing on key US economic reports and Federal Reserve speeches for clues on potential interest rate cuts. With the market pricing in slower rate cuts in 2025, gold prices could face further challenges unless geopolitical or economic developments shift the balance.