Gold surged past $4,700 an ounce on Tuesday while silver retreated from a fresh all-time high as President Donald Trump's push to acquire Greenland stoked fears of a potential U.S.–Europe trade war.
Markets are now awaiting Europe's response to Trump's threat to impose tariffs on eight European nations opposing his Greenland ambitions. Investors are also monitoring developments from Davos, where Trump indicated he would meet with several parties to discuss his plans for the island. French President Emmanuel Macron, meanwhile, declined an invitation to join Trump's proposed Board of Peace for Gaza. Silver touched a record $94.7295 an ounce earlier in the session before pulling back.
The U.S. threat toward its NATO allies has rattled markets, boosting demand for safe-haven assets and reviving the "Sell America" trade. Macron intends to request activation of the European Union's anti-coercion instrument, though German Chancellor Friedrich Merz has been urging him to temper his response.
"We have entered an era of resource nationalism between major powers," said Peter Kinsella, global head of FX strategy at Union Bancaire Privée SA, in an interview on Bloomberg Television. Kinsella noted that currencies may not be the best vehicle to play this geopolitical theme, adding that gold remains a strong bet while cautioning against expecting easy returns from silver.
The Greenland crisis—coming on the heels of the U.S. seizure of Venezuela's leader—has added fresh impetus to what was already a breakneck rally in precious metals. The Trump administration's renewed attacks on the Federal Reserve have also supported gold and silver this year by reviving concerns about central bank independence.
"The rally in precious metals did not begin with this dispute, and it is unlikely to end with it," wrote Ole Hansen, a strategist at Saxo Bank A/S. "Instead, the Greenland episode has poured fresh fuel on a rally that has been building for months, driven by a macro and geopolitical backdrop that has become increasingly uncomfortable for investors reliant on financial assets alone."
Dollar Weakness Compounds Precious Metals Strength
The dollar index dropped to a two-week low on Tuesday, finishing down 0.79%. The greenback retreated as Trump's Greenland push revived fears of trade confrontations between the U.S. and its European allies, with little sign of de-escalation.
Overnight, Trump threatened steep tariffs on French champagne after Macron ruled out joining a U.S.-led peace initiative. Rising tensions have also sparked concerns that European investors may begin unwinding their dollar-denominated assets. Over the weekend, Trump announced a 10% tariff on goods from eight European countries starting February 1, rising to 25% in June unless there's a deal for the "purchase of Greenland."
The dollar faces additional headwinds from diverging monetary policy expectations. The FOMC is expected to cut interest rates by approximately 50 basis points in 2026, while the Bank of Japan is projected to raise rates by another 25 basis points over the same period. The ECB is expected to hold rates steady.
Further weighing on the dollar, the Federal Reserve has been adding liquidity to the financial system through its $40 billion monthly T-bill purchases, initiated in mid-December. The greenback is also being undercut by speculation that Trump intends to appoint a dovish Fed Chair—a bearish signal for the currency. Last Friday, Trump said he would announce his selection for the new Fed Chair within the next few weeks.
Wishing you as always good trading,
