Markets Tremble: Gold Eyes $4,700 as Trump Ignites Greenland Trade War

Safe-haven assets staged a historic rally on Monday as renewed geopolitical hostilities between the United States and Europe sent shockwaves through global markets. Gold (XAU/USD) surged over 1.5%, approaching the psychological $4,700 per ounce barrier, while Silver (XAG/USD) notched a fresh all-time high near $94.15.

The flight to safety comes as investors brace for the onset of a new trade war. The pivot toward precious metals coincided with broad weakness in the Greenback; the US Dollar Index (DXY) slipped to 99.05, fueling gains for major rivals including the Euro and Canadian Dollar.

The Greenland Spat Escalates

The catalyst for the upheaval is President Trumps ultimatum regarding Greenland. Citing the island's strategic importance, the administration announced plans to impose 10% tariffs on imports from eight European nations starting February 1. The threat includes an automatic escalation to 25% by June if the EU continues to block US efforts to acquire or control the territory.

Europes response has been swift and combative, rejecting the notion of Greenland as a tradable commodity. The diplomatic deadlock has spooked capital markets, driving flows out of the Dollar—which faces headwinds from potential retaliatory trade barriers—and into physical assets.

FX Market Reaction

• EUR/USD: The Euro snapped a four-day losing streak, climbing roughly 0.40% to trade around 1.1648.
• USD/JPY: The pair remained relatively stable near 158.10, caught between US political uncertainty and Japans own domestic ambiguities.
• USD/CAD: The Canadian Dollar strengthened, hitting a one-week high as the Greenback softened globally.

Deep Dive: The 'Weaponization' of Capital

A darker narrative is forming among macro strategists: the risk of a financial cold war where Europe retaliates not just with tariffs, but by unloading US assets.

With EU entities holding over $10 trillion in US assets, the concept of “weaponizing” these holdings is moving from fringe theory to serious debate. Deutsche Bank‘s Global Head of FX Research, George Saravelos, warned that Europe’s willingness to fund the US deficit is being tested by the breakdown in geoeconomic alliances.

However, the “nuclear option” of dumping US Treasuries remains a tail risk. Societe Generale analysts argue that such a move would be self-defeating for European investors, causing massive portfolio losses. Nevertheless, the mere discussion of this scenario highlights the fragility of current market sentiment.