Gold and silver prices hit record highs and European stock markets fell, after US President Donald Trump threatened to impose additional tariffs on eight European countries in an increasingly aggressive bid to claim Greenland.
Gold rose 1.6% to $4,671 an ounce on Monday morning, after hitting an all-time high of $4,689, as investors turned to safe-haven assets. US gold futures for February rose 1.7% to $4,676.
Silver rose to a record high of $94.08 per ounce, before falling to $93.15, up 3.6%.
Stock markets across Europe fell at the open. The French CAC 40 index fell by 1.6%, the German Dax index fell by 1.3%, and the Spanish Ibex 35 index fell by 0.3%. In London, the FTSE 100 index fell 0.5%.
Automakers were hit hard, with Volkswagen, BMW and Mercedes-Benz shares falling between 2.5% and 4%, while Peugeot owner Stellantis fell 2%.
“For companies, the developments over the weekend mean another period of uncertainty for investments in and exports to the United States,” said Carsten Brzeski, global head of macro analysis at ING.
US markets were closed on Monday for Martin Luther King Jr. Day, but US technology stocks listed in Europe also fell. Shares of Alphabet, which owns Google, listed in Frankfurt, fell by 2.2%, while shares of Nvidia and Microsoft fell by 2.9% and 1.6%, respectively.
On Saturday, Trump threatened to impose 25% tariffs on Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands and Finland until the United States is allowed to buy Greenland, marking an unusual escalation in the president’s campaign to claim the autonomous Danish territory.
In a long time mail Trump said Saturday on Truth Social that he would impose 10% tariffs starting February 1 “on any and all goods sent to the United States of America.”
Trump said the tariffs would be “payable until an agreement is reached to purchase all of Greenland,” rising to 25% on June 1.
This move pushed the dollar to decline by up to 4% against the Swiss franc and 0.2% against the Japanese yen, both of which are considered safe haven currencies, before mitigating its losses by midday London time.
However, companies operating within the EU may end up exploiting a tariff loophole. Brzeski said: “Of course, the European Union is a single trading bloc in which there are no tariff barriers. This means that the options for evading tariffs from the six countries that Trump mentioned are many.”
“Take Belgium, for example, which is set to retain the 15% tariff but is sandwiched between the Netherlands and France, both of which will see tariffs rise to 25% from February 1. As a result, Belgian ports could become more congested as they represent a potential route to evade the tariff. This would ultimately make the tariff less effective than previously announced duties,” Brzeski said.
ING estimates that additional tariffs would likely shave 0.2 percentage points off European GDP growth. The UK may be hardest hit, with Capital Economics forecasting that new tariffs could reduce UK GDP by 0.3-0.75% in a worst-case scenario..
“The long-term political and geopolitical consequences will be much greater,” said Paul Dales, chief economist at Capital Economics in the UK. “One reason may be that the UK is moving closer to the EU, at least when it comes to trade in goods.”
EU ambassadors are now preparing retaliatory measures if Trump follows through on his tariff threat.
“With Trump adding tariffs to the mix, it is clear that his threat to Greenland is real,” said Matt Simpson, a senior analyst at global financial services firm StoneX. “Geopolitical tensions have given gold bulls another reason to push gold to new highs.”
“This has been a big week for markets, and it depends on Donald Trump’s tone in Davos,” said Kathleen Brooks, director of research at brokerage XTB. If he increases pressure on Europe to let him take control of Greenland, we do not believe that the benign market environment and low volatility – still well below the 12-month average – can persist as we move through January.