Gold trading reminder: U.S. Treasury yields broke through 4% for the first time in two months, gold prices were under slight pressure, is a deep correction coming?

In the early Asian session, spot gold fluctuated in a narrow range and is currently trading around $2,643.19 per ounce. Gold prices fluctuated and fell 0.38% on Monday, rising to around $2,660 at its highest point during the session and hitting a low of $2,637.63 per ounce, closing at $2,642.46 per ounce. Federal Reserve officials said it was not appropriate to relax monetary policy excessively. Recent employment data was good, and investors lowered their expectations for a sharp interest rate cut by the Federal Reserve in November. The dollar remained strong, and U.S. Treasury yields rose above 4% for the first time in two months, which also put pressure on gold prices.

In the short term, gold prices are still facing the risk of further correction in the short term. However, the prospect of further interest rate cuts by major central banks around the world and geopolitical tensions still attract bargain hunting and safe-haven buying to support gold prices. This will limit the correction space for gold prices.

The dollar hovered at its highest level in seven weeks, making dollar-denominated gold more expensive for investors holding other currencies. The yield on the 10-year U.S. Treasury bond broke 4% for the first time in more than two months on Monday, which means the opportunity cost of holding gold has increased, reducing the attractiveness of gold.

Peter A. Grant, vice president and senior metals strategist at Zaner Metals, said: "The strong dollar is currently a short-term obstacle to gold's record high. I still see the potential for gold to rise to $2,700 in the short term, while the long-term target of $3,000 remains unchanged due to the safe-haven demand brought about by geopolitical tensions and political uncertainty approaching the U.S. election."

After a U.S. jobs report last week reinforced the view that the economy is unlikely to need a large interest rate cut from the Federal Reserve for the rest of the year, traders now see an 86% chance of only a 25 basis point rate cut next month.

It should be reminded that at the end of September, interest rate futures expected the probability of a 50 basis point rate cut by the Federal Reserve in November to be as high as 50%. The market currently expects the probability of a 50 basis point rate cut to have fallen to zero, while the probability of no rate cut has risen to 14%.

Markets will now focus on the minutes of the Fed's last policy meeting, as well as this week's U.S. Consumer Price Index (CPI) and Producer Price Index (PPI) data.

"Inflation is back in focus, and the strength of the labor market and economy has caused some anxiety that the Federal Open Market Committee (FOMC) may have cleverly declared victory too early," Action Economics wrote in a blog. "The September report was widely expected to be benign, so hotter data may further hit the market."

This trading day needs to pay attention to the U.S. August trade account, continue to pay attention to the speeches of Fed officials and news related to the geopolitical situation, and pay attention to the impact of global stock market performance on risk aversion.

Federal Reserve Musalem advocates further rate cuts, but believes that easing policies should be driven by data

Alberto Musalem, who became president of the Federal Reserve Bank of St. Louis earlier this year, said on Monday that he supports further rate cuts as the economy continues to move forward on a healthy path, but at the same time pointed out that the central bank should act cautiously and should not overly ease monetary policy.

"Further gradual reductions in the policy rate may be appropriate over time," Mousallem said, noting that "patience" would serve the Fed well and that "I would not prejudge the size or timing of future policy adjustments."

Mousallem was speaking in prepared remarks for a Money Marketeers conference at New York University. He does not have a vote this year on the Federal Open Market Committee, which sets interest rate policy.

Government data on Friday showed unexpectedly strong momentum in the job market, raising questions about widespread concerns that the labor market is sluggish. The Fed last month cut its interest rate target by half a percentage point to a range of 4.75% to 5% as inflation pressures have subsided significantly and there are ample signs that the job market is weakening.

The Fed also gave assurances that it would cut rates by a total of half a percentage point by the end of the year. But strong hiring momentum in September raised questions about how aggressively the Fed needs to cut rates.

Mousallem noted that he supports the Fed's latest rate decision and said his outlook for monetary policy is "slightly above" the "median" estimate of his colleagues. Fed officials see the federal funds rate at around 4.4% by the end of the year and 3.4% by the end of 2025, according to projections released at the September policy meeting.

Mousallem advocated a cautious pace of rate cuts, while noting that annual inflation is expected to return to 2% in the coming quarters and that the job market is consistent with a strong economy.

"Given the current economic situation, I believe that easing too much too soon would be more costly than easing too little too late," Mousallem said. "This is because persistently high inflation poses a threat to the Fed's credibility and future employment and economic activity," he said.

"There is a risk that inflation will stop moving" toward the 2% target, Mousallem said. "I believe the risk of inflation staying above 2% or moving higher has decreased."

In his speech, Mousallem also said that financial conditions generally remain supportive of economic activity. He expects the economy to continue to expand, but also noted that uncertainty about the outcome of the Nov. 5 U.S. election has led some businesses to hold off until the situation becomes clearer.

Musallem said that based on feedback from his district, "I have heard enough 'hold on until 2025' from business people and others that I believe resolving some of the uncertainty around the rate outlook or the election could provide a clear stimulus to investment and spending."

Fed's Kashkari says balance of risks has shifted from inflation to possible higher unemployment

Minneapolis Fed President Neel Kashkari said on Monday that he believes the economy is resilient and that the labor market, while showing some signs of weakness, remains strong, and the Fed's interest rate cuts are intended to maintain that resilience.

"The balance of risks has shifted from high inflation to possible higher unemployment," Kashkari said at the Bank Holding Company Association's fall symposium. "That's why I think reversing policy is the right move."

When asked about Vice Presidential candidate Vance's statement that housing inflation is related to immigration, Kashkari said his recent similar remarks were based on logic rather than research.

In the post-epidemic era, insufficient construction, supply chain disruptions and labor market shortages have all driven home prices higher, Kashkari said. "I also speculate that one thing we know very well is that more people means more people need places to live... I haven't seen a more detailed analysis other than this logical reasoning that more people means more housing demand."

U.S. Treasury yields break 4% for the first time in two months

The 10-year U.S. Treasury yield broke 4% for the first time in more than two months on Monday, which means the opportunity cost of holding gold has increased, reducing the attractiveness of gold, and the market has reduced bets on another large-scale rate cut after the release of a strong U.S. employment report last Friday.

Investors are also preparing for $119 billion in auctions of U.S. three-year, 10-year and 30-year Treasury bonds. This prompted market participants to sell Treasury bonds, pushing their prices down and yields higher, and then buy them back after the auction.

The 10-year Treasury yield rose 3.9 basis points to 4.019% on Monday from late last Friday, the fourth consecutive day of gains, after hitting 4.038%, the highest since late July, and rose 13 basis points on Friday, the largest single-day increase since June 30. The U.S. economy added 254,000 jobs in September, more than economists expected, and the unemployment rate unexpectedly fell to 4.1% from 4.2%.

The two-year Treasury yield hit 4.0270%, the highest since August 19, and was last up 7.4 basis points at 4.006%. On Friday, the yield rose nearly 22 basis points, the biggest one-day increase since April.

"At this point, we are still in a rate-cutting cycle. From a market perspective, I still believe that the Fed will cut rates a few more times this year," said Angelo Manolatos, macro strategist at Wells Fargo. "The real question is: How much will they cut rates in 2025? The market has reconsidered the move to cut rates by 25 basis points."

The U.S. interest rate futures market sees an 86% chance of a 25 basis point rate cut next month and a 14% chance that the Fed will pause, according to calculations by the London Stock Exchange Group (LSEG). The market also sees 50 basis point rate cuts for the rest of the year.

The dollar consolidated near a seven-week high as investors reassessed their positions

The dollar held near a seven-week high on Monday, closing at 102.48, as investors reassessed their positions after last week's strong U.S. jobs data, and concerns that tensions in the Middle East will spread into a larger conflict drove buying of safe-haven assets. It hit 102.69 last Friday, the highest since mid-August, and the dollar rose more than 2% last week, the largest weekly gain in two years.

The closely watched September jobs report showed that U.S. non-farm payrolls increased by the largest amount in six months, the unemployment rate fell, and wages grew steadily, prompting the market to scale back bets on further large U.S. interest rate cuts. After the jobs data was released, the market expected the Federal Reserve to cut interest rates by only 25 basis points in November, instead of 50 basis points.

Brian Daingerfield, foreign exchange strategist at NatWest Markets, said: "Looking at some of the more risk-sensitive currencies in the G10 group, the dollar did generally strengthen, but many traditional safe-haven currencies - the yen, Swiss franc and the dollar - performed relatively well today." He also said: "This does reflect that stocks fell slightly, oil prices rose further, and the market is closely watching the developments in the Middle East." Israel and Hezbollah continue to fight fiercely, and the United States says that the Israeli army's ground operations in Lebanon are limited. Hezbollah fired rockets at Haifa, Israel's third-largest city, on Monday, and Israel seemed ready to expand its offensive in Lebanon. A year ago, Hamas launched an attack on Israel, triggering the Gaza War. Israelis held ceremonies and protests on the first anniversary of the outbreak of the conflict. At present, the Gaza conflict has spread throughout the Middle East, raising concerns about a full-scale regional war. Iran-backed Hezbollah said it used the "Fadi 1" missile to attack a military base south of Haifa and launched another round of attacks on Tiberias, 65 kilometers away. Hezbollah later said it had also fired missiles into the northern part of Haifa. The Israeli military said about 135 shells had entered Israel as of 22:00 Monday. Ten people were reported injured in the Haifa area.

The Israeli military said its air force carried out a large-scale bombing of Hezbollah targets in southern Lebanon, killing two Israeli soldiers, bringing the Israeli military death toll in Lebanon to 11.

The Lebanese Health Ministry reported dozens of deaths, including 10 firefighters killed in an airstrike on a municipal building in the border area and 22 killed in airstrikes on Sunday. About 2,000 Lebanese have been killed since Hezbollah began firing into Israel a year ago in support of Hamas, most of them in the past few weeks.

The Israeli military has called its ground operations in Lebanon "localized, limited and targeted," but they have steadily increased in size since they began last week.

State Department spokesman Matthew Miller said on Monday that Israel's ally the United States believes the ground operations in Lebanon remain limited.

The Israeli military said soldiers from Israel's 91st Division entered southern Lebanon.

Israel launched airstrikes on 120 targets in southern Lebanon within an hour on Monday, including Radwan Special Forces, Hezbollah's missile forces and its intelligence services. The military said in a statement that the operation was aimed at weakening Hezbollah's command, control and launch capabilities, as well as assisting ground forces in achieving their operational objectives.

The escalating conflict has raised concerns that the United States and Iran will be drawn into a wider war in the Middle East.