Gold trading reminder: U.S. Treasury yields rose to a 12-week high, Blinken went to the Middle East again to promote a ceasefire, and gold prices fell after hitting a record high

Spot gold fluctuated in a narrow range in early Asian trading on Tuesday (October 22), currently trading around $2,722.05 per ounce. Gold fell back after soaring to a record high of 2,740.44 on Monday, closing at $2,719.43 per ounce, down about 0.1%, as higher U.S. Treasury yields and the dollar offset the support from increased uncertainty in the U.S. election and the Middle East war.

"The 10-year Treasury yield has risen sharply and the U.S. dollar index has strengthened, which has put some pressure on gold," said Daniel Pavilonis, senior market strategist at RJO Futures.

The 10-year Treasury yield rose to a 12-week high on Monday, while the U.S. dollar index followed suit, making gold more expensive for overseas buyers.

Gold has climbed more than 32% so far this year, repeatedly setting new record highs. The current market bullish sentiment is extremely high, and investors also need to be wary of profit-taking by bulls.

Giovanni Staunovo, an analyst at UBS, said: "We think gold will reach $2,900 an ounce in the next 12 months, supported by further rate cuts from the Federal Reserve."

Currently, traders believe that the Federal Reserve has an 85% chance of a 25 basis point rate cut in November, down slightly from 99% the day before, and a 13.2% chance of no rate cut, up from 0% the day before.

After hitting its highest level since the end of 2012 at 31.25 on Monday, spot silver narrowed its gains slightly in late trading and closed at $33.76 an ounce, up about 0.17%.

Pavilonis added: "We may see a slowdown in the pace of gold's rise, while silver begins to accelerate and catch up with gold."

Investors need to continue to pay attention to the speeches of Federal Reserve officials and changes in the market's expectations for the Federal Reserve's November rate cut.

In addition, investment needs to continue to pay attention to news related to the geopolitical situation. U.S. Secretary of State Blinken went to the Middle East again on Monday to promote a ceasefire, seeking to restart negotiations to end the Gaza war and defuse the spread of the Lebanese conflict. This slightly dampened safe-haven buying demand for gold.

There are fewer economic data this trading day, with the focus on the IMF's global economic outlook report.

The U.S. 10-year Treasury yield hit a 12-week high as investors see a stronger economy

The U.S. 10-year Treasury yield rose to a 12-week high on Monday as investors see a stronger U.S. economy and a less dovish Federal Reserve.

The yield had already jumped after a September jobs report that far exceeded expectations led investors to no longer expect the Fed to cut rates further sharply after a 50 basis point cut last month.

"Before the jobs report, the bond market saw a greater chance of a recession and a greater chance of aggressive easing from the Fed," said Will Compernolle, macro strategist at FHN Financial in New York.

Traders are currently pricing in 41 basis points of rate cuts by the end of the year, suggesting that the market is less certain about the Fed cutting rates by 25 basis points at each of the next two meetings.

Dallas Fed President Logan said Monday she sees more rate cuts ahead and said she sees no reason why the Fed wouldn’t also move forward with its work to shrink its balance sheet.

Minneapolis Fed President Neel Kashkari said Monday again that he expects “modest” rate cuts in the coming quarters, but a sharp deterioration in the labor market could prompt him to advocate for a faster pace of rate cuts.

Investors are also watching geopolitical tensions in the Middle East and the Nov. 5 U.S. presidential election, which Compernolle noted “will lead to a lot of volatility.”

The 10-year Treasury yield rose 10.5 basis points to 4.18% on Monday, the highest since July 30. The yield broke above its 200-day moving average of 4.17% for the first time since July 5.

The two-year Treasury yield rose 7 basis points to 4.025% on Monday.

The gap between two-year and 10-year Treasury yields widened to 15.1 basis points. JPMorgan analysts believe that as the yield curve continues to steepen, long-end yields will rise further.

"Despite the recent rise in yields, the bearish steepening suggests that the long end may fall further. We see no near-term catalyst to reprice Fed policy expectations more dovishly, and political developments are likely to dominate price action as November approaches," Jay Barry and other analysts said in a report.

The U.S. budget deficit is expected to worsen regardless of who becomes president, Trump or Harris, but the fiscal details will also depend largely on whether the two parties can gain a majority in Congress.

The U.S. Treasury will sell $13 billion in 20-year bonds on Wednesday and $24 billion in five-year inflation-protected securities on Thursday.

The dollar climbed on Monday, boosted by rising Treasury yields, as a slew of solid U.S. economic data suggested the Fed could be patient in cutting rates as investors prepare for the Nov. 5 presidential election. The dollar has risen for three straight weeks and 14 of the past 16 trading days as a slew of positive economic data led investors to lower their expectations for the size and pace of the Fed's rate cuts. The market is pricing in an 87% chance of a 25 basis point rate cut at the Fed's November meeting, and a 13% chance of the Fed keeping rates steady, according to CME's FedWatch tool. A month ago, the market expected the Fed to cut rates by at least 25 basis points, with a 50.4% chance of a 50 basis point cut. "This is less about the Fed than it is about the market correcting itself and moving closer to the Fed again," said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. "Economic data has been strong, and we'll see that in the GDP data next week."

Last week, the Atlanta Fed raised its forecast for third-quarter gross domestic product (GDP) growth to 3.4%.

The dollar index, which measures the greenback against a basket of currencies, rose 0.5% to 103.98 on Monday, its biggest one-day percentage gain since October 4.

Israel attacks Beirut, Blinken heads to the Middle East again to push for a ceasefire

U.S. Secretary of State Blinken traveled to the Middle East again on Monday to push for a ceasefire, seeking to restart negotiations to end the Gaza war and defuse the spread of the conflict in Lebanon. This is Blinken's 11th visit to the region since Hamas attacked Israel on October 7, 2023, triggering the Gaza war.

Israel launched several attacks on the southern suburbs of Beirut on Monday, one of which occurred near Rafik Hariri University Hospital, the main government hospital in the capital. The Lebanese Ministry of Health said the attack killed four people, including a child, and injured 24 others. The Israeli military did not immediately comment.

The U.S. State Department said in a statement that Blinken will discuss with leaders of Israel and neighboring Arab countries the importance of ending the Gaza war, ways to develop a post-conflict plan for the Gaza region, and how to resolve the conflict between Israel and Hezbollah through diplomatic means.

U.S. envoy Amos Hochstein held talks with Lebanese officials in Beirut on Monday on the conditions for a ceasefire between Israel and Hezbollah. Hochstein said that it was "not enough" for both sides to commit to abide by UN Resolution 1701, which ended the last round of conflict between Israel and Hezbollah in 2006 and required that no other troops or weapons be stationed in southern Lebanon except for Lebanese government troops.

He said that neither Hezbollah nor Israel had fully implemented the UN resolution, and although the resolution would serve as the basis for ending the current hostilities, the United States was seeking to determine what else needed to ensure that the resolution was implemented "fairly, accurately and transparently."

The Israeli military said its target was the Lebanese financial institution Al-Qard Al-Hassan Association, which has more than 30 outlets across Lebanon and the United States said Hezbollah used the association to manage its finances. Neither the association, Hezbollah nor the Lebanese government immediately issued a statement.

Fadi Alameh, director of Hariri University Hospital, said the hospital was being evacuated because Israel claimed there was a Hezbollah cash bunker underneath it. Israeli military chief spokesman Rear Admiral Daniel Hagari said Hezbollah had hidden hundreds of millions of dollars in cash and gold there and that Israel would not attack the hospital but would monitor the site. Reuters could not independently verify the allegation.

Meanwhile, Syrian state television cited military sources as saying a suspected missile attack on a car killed at least two people and wounded three in the capital Damascus on Monday, adding that the attack was carried out by Israel. The Israeli military said the attack killed the head of Hezbollah's money disbursement department. Reuters could not independently verify the claim.

The death toll since the Israeli offensive began has risen to 2,483, with another 11,628 injured, the Lebanese Health Ministry said on Monday. Israeli authorities said a total of 59 people were killed in northern Israel and the occupied Golan Heights during the same period.