Geopolitical Rift Widens: Trump's Tariff Threat Targets Europe as Gold Tests $5,000

Safe-haven assets experienced significant volatility on Wednesday as a diplomatic row between the United States and the European Union intensified, driving gold prices toward the psychological $5,000 mark before a slight retracement.

Key Market Drivers & Data

• Gold tested psychological $5,000 mark, peaking near $4,900.
• Tariff threat: 10% on goods from Germany, France, UK effective February 1, 2026.
• Potential escalation to 25% tariff by June.
• Diplomatic friction linked to Greenland acquisition dispute.

Greenland Dispute Triggers Tariff Fears

US President Donald Trump has issued a stark ultimatum to European allies, threatening to impose a 10% tariff on all goods from eight nations—including Germany, France, and the UK—effective February 1, 2026. The tariffs, which could escalate to 25% by June, are explicitly linked to the refusal of Denmark and its allies to negotiate the sale of Greenland to the United States.

The threat has drawn a sharp rebuke. European Commission President Ursula von der Leyen declared the bloc “fully prepared” to retaliate. European Central Bank President Christine Lagarde echoed this in Davos, labeling the US behavior as “strange” and emphasizing Europe would not succumb to bullying.

Market Reaction in Gold

Escalating tensions sent spot gold prices to record highs near $4,900 per ounce. However, gains were trimmed late Wednesday after President Trump clarified in Davos that he has “no intention” of using military force for Greenland, causing gold to dip approximately $40.

Technicals & Outlook

• Analysts at J.P. Morgan and Goldman Sachs project gold breacing $5,000 by late 2026.
• Support underpinned by Central Bank Accumulation (diversification away from dollar) and Fiscal Concerns regarding US debt sustainability.

The “Trump Trade” Returns

Renewed friction has revived the “Trump Trade”. While equities found relief in the “no force” assurance, risk premiums remain elevated. Investors are monitoring the emergency meeting of EU leaders in Brussels.