Gold rose to a new record high on Monday, amid a scramble for safe havens that left the dollar weaker and the whole precious metals complex rising. The stock market drop was notable, with European indices falling the most in months amid the threat of rising trade tensions. Ahead of a very busy geopolitical calendar this week, traders are facing a considerable amount of uncertainty.
Over the weekend, US President Donald Trump threatened to impose 10% tariffs on eight countries that sent a multinational defense reconnaissance team to Greenland over the weekend. Those tariffs would start on February 1st and rise to 25% if the US didn’t acquire the Arctic territory by the start of June. European leaders are set to convene this week to agree on a response, as US, Danish and Greenlandic high-ranking officials are set to meet again to discuss the territory’s sovereignty.
A New Trade War Heats Up
The tensions come at a crucial time. After the US reached a trade deal with the EU to settle the “liberation day” tariffs imposed by Trump in April, the EU Parliament has yet to ratify the treaty. Following Trump’s announcement, the largest political bloc in the European Parliament, the EPP, said it would pause its support for the trade deal. French President Emannuel Macron called for implementing the so-called “trade bazooka”, the ACI, which would bar US companies from accessing the common market.
Last year, the EU compiled a list of €93 billion in tariffs it could impose on the US in retaliation for Trump’s tariffs. Ultimately, the bloc did not implement them as a deal was reached. But the list remains available should EU leaders agree to that option at their meeting scheduled alongside the World Economic Forum in Davos, which Trump will attend. On the other side of the balance, cold weather has depleted natural gas reserves in Europe, which has become increasingly dependent on LNG imports from the US after winding down Russian natural gas imports.
What to Expect from Davos
Markets are treading with caution, but some analysts are pointing to Trump’s history of threatening tariffs that ultimately aren’t implemented as part of a pressure strategy. The latest salvo might result in another “TACO” trade as Trump is set to be in close proximity with European leaders this week.
Trump argues that the US needs control of Greenland as part of securing NATO from Russian and Chinese threats through the Atlantic. He argues that it is an intrinsic part of his planned “Golden Dome” to protect the US from ballistic missiles similar to Israel’s Iron Dome. A 1951 treaty allows the US not only to establish military bases in Greenland but also to substantially expand its presence, including the deployment of defensive missile systems.
Potential Market Reaction
For now, markets are in a holding pattern with risk aversion the main theme ahead of the leaders’ meeting in Davos. The dollar has retraced some of its gains from last week. While EU-US trade tensions are rising again, markets still need to keep an eye on whether Trump announces his pick to succeed Fed Chair Jerome Powell.
The US is sending a large delegation to Davos this year, including Treasury Secretary Scott Bessent and lead Trade Representative Jamison Greer. It could be the venue to announce other deals, including the long-awaited trade agreement with India. All of that could drive the markets, as it would come as a surprise while traders are focused on the Greenland situation.