Gold (XAU/USD) fell over 1.3% on Tuesday as the US dollar rose and US Treasury yields climbed, with the 10-year yield near a 16-month peak. Gold traded at $4,506 after earlier reaching $4,589.
US–Iran talks appeared stalled, with reports that Tehran’s latest proposal was unchanged, delaying discussion on uranium enrichment. US President Donald Trump said he refrained from attacking Iran on Tuesday.
Markets React To Rising Yields
Oil prices rose for a fourth straight day, with WTI up 1.57% at $104.07 per barrel. Trump said he was “an hour away” from deciding to act, which added to concerns about renewed conflict.
Inflation data added to rate expectations, with US CPI at 3.8% and PPI at 6%. The US 30-year bond yield moved above 5%, a level last seen in 2007, and the US Dollar Index was up 0.31% at 99.26.
Money markets priced a 50% chance of one Federal Reserve rate rise by year-end, according to Prime Terminal. Upcoming items include Fed speeches, the latest FOMC minutes and housing data.
Technical levels cited include resistance above $4,600, support at $4,500, $4,464 and $4,400, then the 200-day SMA at $4,334. Upside levels include $4,550, around $4,600, the 20-day SMA at 4,638, and the 50-day SMA at $4,704.
Looking back to this time in 2025, we saw a significant shock as geopolitical tensions sent oil prices soaring above $104 per barrel. That energy spike fueled inflation fears, driving the 30-year Treasury yield past 5% and punishing gold prices. The market was aggressively pricing in Federal Reserve rate hikes to combat rising costs.
Positioning For A Lower Rate Regime
The situation today, on May 20, 2026, is markedly different. The most recent Consumer Price Index (CPI) report showed inflation has cooled to 2.9%, a sharp contrast to the 3.8% that triggered alarm last year. West Texas Intermediate (WTI) crude oil is now trading much lower, near $81 a barrel, as supply concerns have eased.
This calmer inflationary environment has allowed Treasury yields to retreat from their 2025 highs, with the 10-year note currently yielding around 4.2%. The probability of a Fed rate hike this year is now below 15%, a complete reversal from the 50% chance we saw a year ago. This shift in central bank expectations is the most critical factor for our positioning.
Given this backdrop, we should consider strategies that benefit from stable or falling interest rates. Buying call options on gold for the next three to six months appears attractive, as lower real yields make non-yielding bullion a better investment. This is a direct play on the idea that the Fed’s aggressive tightening cycle is firmly behind us.
The sharp, unexpected price moves of last year are also a reminder of the value of volatility. Today, with the VIX trading near 14, down from the elevated levels during the 2025 oil shock, options premiums are cheaper. We can use this to structure long-volatility trades on energy ETFs as a hedge against any unforeseen flare-up in global tensions.
The strong dollar that dominated 2025 has also faded, with the US Dollar Index now trading closer to 97. We should explore put options on dollar-tracking funds, anticipating that a more neutral Fed will reduce the dollar’s appeal. This strategy would also benefit other assets priced in dollars, including precious metals.
