Geopolitical tensions rise, how can U.S. bond yields support gold breaking below key levels? Global assets face a new round of reshuffling.

2026 marks the beginning of a new era, with the global capital markets facing a subtle re-pricing. Geopolitical tensions suddenly escalate, with the US 10-year Treasury yield rising to 4.19%, hitting a recent high. The significance behind this figure goes far beyond the surface—it not only impacts bond market valuations but also determines the direction of safe-haven assets like gold and crude oil.

Why Has the US Treasury Yield Become a Key Market Driver?

The rise in the US 10-year Treasury yield reflects the market’s reassessment of inflation expectations and Federal Reserve policies. When yields increase, the opportunity cost of holding non-yielding assets like gold rises, but it also signals an increase in risk premiums. This explains why, during this geopolitical escalation, despite the rising US Treasury yields, gold still hit a new high of 4372.6@E5@ USD—market assessments of systemic risks from regional conflicts have overshadowed interest rate factors.

Commodity Markets Show Divergent Trends

Against the backdrop of the US dollar index rising to 98.43, different commodities perform very differently. Gold surged to 4331.5@E5@ USD/ounce, up 0.32%, reflecting investors’ safe-haven demand. In contrast, WTI crude oil declined to 57.33@E5@ USD per barrel, down 0.14%.

This divergence stems from gold’s rally driven by geopolitical turmoil-induced uncertainty premiums, while oil prices are expected to reflect potential changes in supply dynamics—recent events may accelerate oil extraction in regions with the largest reserves. Goldman Sachs analysts believe that oil prices will face greater downward pressure, maintaining Brent crude at an average of $56 per barrel and WTI at $52 this year.

Cryptocurrency Continues Upward Momentum, Four Consecutive Gains

Compared to the volatile traditional commodities, the crypto market demonstrates stronger upward momentum. Bitcoin is at 96910@E5@ USD, up 1.95% in 24 hours; Ethereum is at 3360@E5@ USD, up 2.19%. Both major cryptocurrencies have maintained gains over the past four trading days. This performance reflects a shift in institutional capital flows, reshaping the balance between risk assets and safe-havens.

Stock Markets Show Mixed Performance, Structural Divergence Evident

The US stock indices perform differently. The Dow Jones Industrial Average rises by 0.66%, the S&P 500 increases by 0.72%, but the tech-heavy Nasdaq drops slightly by 0.03%. This indicates profit-taking pressure on overvalued tech stocks.

In contrast, European markets are broadly strong, with the UK FTSE 100 surpassing 10,000 points for the first time, setting a new record. France’s CAC 40 gains 0.56%, Germany’s DAX 30 rises 0.2%. A-shares outperform with the Golden Dragon Index soaring 4.38%, indicating renewed international capital interest in China’s market.

Hong Kong night session futures also show slight gains, with the Hang Seng Index futures closing at 26,442 points, 104 points above the previous close.

Forex Market: US Dollar Strength Dominates, Yen Appreciates, Boosting Risk

The US dollar index rose 0.16% to 98.43, USD/JPY increased 0.1%, but EUR/USD fell 0.22%. This indicates a relatively strong dollar with limited gains. A strong dollar often signals capital outflows from emerging markets, while the yen’s appreciation reflects the Bank of Japan’s continued tightening stance.

Geopolitical Changes Reshape the Energy Landscape

Recent regional conflicts are profoundly altering global energy expectations. A sudden military action changed leadership in a certain region, triggering a re-pricing of supply-side risks worldwide.

The International Energy Agency (IEA) and OPEC+ have decided to pause production increases over the next three months, maintaining current output levels. Nonetheless, market expectations of medium-term supply increases still pressure oil prices. Major US oil companies remain cautious about new investment opportunities, considering it premature to evaluate investment plans at this stage.

How Should Investors Respond to the New Normal of Volatility?

Goldman Sachs’ trading team outlines three major trading directions for 2026: first, favoring companies that leverage AI to improve productivity; second, shorting low-income consumer discretionary goods; third, pairing trades between leading AI firms and smaller edge companies.

Evercore ISI notes that, historically, after the S&P 500 has risen over 10% for three consecutive years, the average next-year gain is only 4.6%, with about half of the years experiencing declines. They expect increased volatility in 2026, with markets fully pricing in positive expectations.

Today’s Market Calendar

Key data to watch include: China December Services PMI, Switzerland November Retail Sales, Eurozone January Investor Confidence Index, US December Manufacturing PMI, among others. These figures will further confirm the true state of the global economy and influence the future trajectory of the US 10-year Treasury yield.