Escalating geopolitical tensions in Greenland and the reshaping of risk aversion and supply logic in financial markets
2026-01-18 13:33:36
On Sunday (January 18th) Beijing time, the focus of global financial markets abruptly shifted from routine economic data to the geopolitical vortex in the North Atlantic. US President Trump announced plans to impose tariffs on eight European countries over Greenland, a move that immediately triggered strong reactions from leaders of several European countries and both parties in the US Congress. The EU announced an emergency meeting on the 18th to discuss countermeasures, while the US Senate Democratic leader has clearly stated that he will push for legislation to block it. This sudden geopolitical tension is expected to significantly disrupt market sentiment early next week, dominating the short-term trends of gold, crude oil, and major foreign exchange currencies. The market is shifting from traditional macro trading models to a repricing of geopolitical risk premiums and energy supply stability.
The latest developments have gone far beyond the scope of typical trade frictions. Trump stated that the United States would impose a 10% tariff on imports from Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands, and Finland starting February 1st, and threatened that if an agreement to "fully acquire Greenland" was not reached, the tariffs would rise to 25% on June 1st. This statement was immediately characterized by several European countries as "unacceptable" blackmail and a "completely wrong" act.
The core logic behind the fundamental impact lies in two points: first, the escalating risk aversion, and second, concerns about potential shocks to European energy supplies. On the EU side, the largest political group in the European Parliament has clearly stated that it will suspend the ratification of the EU-US trade agreement and the arrangements for lowering tariffs on US products within the agreement. This move means that transatlantic trade relations may not only fail to deepen but may even risk regression. The leader of the Dutch Greens-Labour coalition stated that Europe must "draw a line" with the US. The Finnish president warned that tariffs will damage transatlantic relations and trigger a dangerous vicious cycle.
Crucially, domestic political resistance in the United States is beginning to emerge. Senate Majority Leader Schumer has pledged to push for legislation to prevent the tariffs from being implemented, calling them "reckless" and based on "unrealistic fantasies." The co-chairs of the Senate's bipartisan NATO monitoring group have also warned that such rhetoric would only benefit adversaries and that they hope to see NATO fracture. This opposition from Congress, particularly from both parties, adds significant political uncertainty to the actual implementation of the tariff threat. Traders need to closely monitor the statement from the EU emergency meeting on the 18th and the progress of relevant US legislative procedures. Any signs of de-escalation could quickly calm market panic, while escalating rhetoric will exacerbate volatility.
The current situation provides multiple positive supports for gold. First, escalating geopolitical risks, particularly disputes involving the US and its traditional core allies, will drive safe-haven funds into gold. Second, global populist policies are at historically high levels. According to well-known institutions, this is typically accompanied by a macroeconomic environment of slower economic growth, rising inflation, and decreased trade openness over the next 10 to 15 years, fundamentally benefiting non-credit assets like gold.
From a technical perspective, gold prices have recently shown a "decoupling" from the traditionally negative correlation with US Treasury real interest rates. This means that under the current macroeconomic and geopolitical structural landscape, safe-haven demand and the diversification of global reserves to de-dollarize are becoming more dominant pricing factors than real interest rates.
For the COMEX gold futures contract (GC), the price action at the beginning of next week will primarily reflect the digestion of weekend news. Key support levels can be referenced from the previous consolidation range, based on the logic that geopolitical risk premiums provide bottom support. If the situation does not deteriorate sharply, some profit-taking may occur in this area. On the upside, the trendline extending from last year's high will act as resistance. A break above this area would require a more significant and sustained inflow of safe-haven funds or significant pressure on the US dollar index due to a stronger euro. Close attention should be paid to subsequent statements from European and American officials, the outcome of the EU meeting, and fluctuations in the US Treasury market. Any news indicating a de-escalation of the situation or successful congressional obstruction could trigger a short-term pullback in gold prices.
Analysts from well-known institutions warn that against the backdrop of rising populism and a simultaneous increase in gold prices, the logic of asset allocation has changed. The explanatory power of traditional frameworks has declined, and the failure of correlations has itself become a new source of risk. Gold volatility may intensify.
The impact on the crude oil market will be more complex. On the one hand, geopolitical risks themselves will bring a risk premium to oil prices. On the other hand, this dispute directly involves several European energy importers and North Sea oil producers (such as Norway and the UK). Although the tariff threats do not currently specify commodity categories, any measures that hinder transatlantic trade flows could disrupt the global crude oil trade pattern and trigger market concerns about supply stability. Furthermore, Russia is a key energy supplier to Europe, and against the backdrop of the ongoing Russia-Ukraine conflict, any rift in the US-EU alliance could affect the coordination of European energy security strategies, thereby impacting the global energy supply and demand balance on a longer-term scale.
In the foreign exchange market, the euro/dollar (EUR/USD) will be the focus. Initially, the euro is typically pressured by risk aversion as Europe is the direct victim. However, with Europe demonstrating an unexpectedly united response (such as suspending the ratification of the EU-US trade agreement) and rising domestic opposition in the US, market logic may shift towards a "sell the news" scenario or concerns about a weakening of the dollar's hegemony. If the euro can hold key psychological levels and receives a strong but unified response from the EU, it has the potential for a short-term rebound. The dollar's trajectory is caught in a dilemma: its traditional safe-haven appeal may provide support, but the US's deliberate damage to alliances, escalating political infighting in Congress, and the prospect of potential trade losses are fundamentally bearish.
For the WTI crude oil futures contract (CL), geopolitical risk premiums will support oil prices. Support lies in the recent convergence of multiple moving averages, which also serves as a reference point for short-term supply and demand balance. Resistance is seen at previous highs; whether a breakout can be achieved will depend on whether the conflict substantially impacts energy supply or transportation. Close attention should be paid to whether the EU meeting addresses energy cooperation independence and whether US officials provide further clarification regarding the scope of tariffs.
Looking ahead to next week, financial market movements will be highly dependent on the political maneuvering in Greenland, rather than simply economic data. The following key events will dominate market sentiment:
1. Possible Path of Events: If the EU emerges with a firm but unified stance after its emergency meeting, while opposition in the US Congress intensifies, the market may interpret this as a reduced likelihood of tariffs being implemented, potentially leading to a temporary rise in risk appetite. This could result in a partial pullback in gold and the Japanese yen, while the euro and European stocks rebound. Conversely, if the Trump administration maintains its hardline stance, or if dialogue between the US and Europe breaks down, risk aversion will dominate the market, with gold, the US dollar, and US Treasury bonds potentially rising in tandem (indicating a purely safe-haven market), while risk assets will come under pressure.
2. Restructuring of Asset Correlation: As the institutional report in the material points out, the traditional "US Treasury bonds - US dollar - gold" correlation is failing. Next week, we may see the US dollar and gold strengthen in tandem due to the same safe-haven driver, or we may see a pattern of the dollar falling and gold rising due to damage to US credit. Traders need to abandon the mindset of simply relying on historical correlations and pay more attention to the specific movements of fund flows.
3. Impact on US Stocks: The tariff threat directly targets Europe, and if implemented, it will raise US import costs and consumer prices, contradicting the Federal Reserve's anti-inflationary goals. Simultaneously, corporate profit prospects face new uncertainty. Therefore, the impact on major US stock indices such as the Dow Jones Industrial Average is generally bearish. However, if Congress successfully blocks the tariff threat, the market may interpret it as a reduction in political risk, thus creating a short-term positive. Overall, political uncertainty itself will suppress risk appetite in the US stock market.
The Greenland crisis has elevated geopolitical risk to a core position in market pricing. The market will likely price this out early next week, inevitably leading to increased volatility. Traders' key task is to closely monitor every statement from European and American officials and every subtle clue in the US Congressional legislative process, accurately grasping the rapid shifts in market sentiment between "risk aversion" and "risk easing." Against the backdrop of structural "decoupling" and rising populism, such market turmoil triggered by political surprises may become more frequent in the future; flexibility and a deep understanding of fundamental logic will be crucial.
I. Escalating Geopolitical Conflicts: From Tariff Rhetoric to Cracks in the Transatlantic Alliance
The latest developments have gone far beyond the scope of typical trade frictions. Trump stated that the United States would impose a 10% tariff on imports from Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands, and Finland starting February 1st, and threatened that if an agreement to "fully acquire Greenland" was not reached, the tariffs would rise to 25% on June 1st. This statement was immediately characterized by several European countries as "unacceptable" blackmail and a "completely wrong" act.
The core logic behind the fundamental impact lies in two points: first, the escalating risk aversion, and second, concerns about potential shocks to European energy supplies. On the EU side, the largest political group in the European Parliament has clearly stated that it will suspend the ratification of the EU-US trade agreement and the arrangements for lowering tariffs on US products within the agreement. This move means that transatlantic trade relations may not only fail to deepen but may even risk regression. The leader of the Dutch Greens-Labour coalition stated that Europe must "draw a line" with the US. The Finnish president warned that tariffs will damage transatlantic relations and trigger a dangerous vicious cycle.
Crucially, domestic political resistance in the United States is beginning to emerge. Senate Majority Leader Schumer has pledged to push for legislation to prevent the tariffs from being implemented, calling them "reckless" and based on "unrealistic fantasies." The co-chairs of the Senate's bipartisan NATO monitoring group have also warned that such rhetoric would only benefit adversaries and that they hope to see NATO fracture. This opposition from Congress, particularly from both parties, adds significant political uncertainty to the actual implementation of the tariff threat. Traders need to closely monitor the statement from the EU emergency meeting on the 18th and the progress of relevant US legislative procedures. Any signs of de-escalation could quickly calm market panic, while escalating rhetoric will exacerbate volatility.
II. Analysis of Safe-Haven Assets: Gold's "Decoupling" and Re-anchoring to Real Interest Rates
The current situation provides multiple positive supports for gold. First, escalating geopolitical risks, particularly disputes involving the US and its traditional core allies, will drive safe-haven funds into gold. Second, global populist policies are at historically high levels. According to well-known institutions, this is typically accompanied by a macroeconomic environment of slower economic growth, rising inflation, and decreased trade openness over the next 10 to 15 years, fundamentally benefiting non-credit assets like gold.
From a technical perspective, gold prices have recently shown a "decoupling" from the traditionally negative correlation with US Treasury real interest rates. This means that under the current macroeconomic and geopolitical structural landscape, safe-haven demand and the diversification of global reserves to de-dollarize are becoming more dominant pricing factors than real interest rates.
For the COMEX gold futures contract (GC), the price action at the beginning of next week will primarily reflect the digestion of weekend news. Key support levels can be referenced from the previous consolidation range, based on the logic that geopolitical risk premiums provide bottom support. If the situation does not deteriorate sharply, some profit-taking may occur in this area. On the upside, the trendline extending from last year's high will act as resistance. A break above this area would require a more significant and sustained inflow of safe-haven funds or significant pressure on the US dollar index due to a stronger euro. Close attention should be paid to subsequent statements from European and American officials, the outcome of the EU meeting, and fluctuations in the US Treasury market. Any news indicating a de-escalation of the situation or successful congressional obstruction could trigger a short-term pullback in gold prices.
Analysts from well-known institutions warn that against the backdrop of rising populism and a simultaneous increase in gold prices, the logic of asset allocation has changed. The explanatory power of traditional frameworks has declined, and the failure of correlations has itself become a new source of risk. Gold volatility may intensify.
III. Energy and Foreign Exchange Markets: Dual Pressure from Supply Concerns and the US Dollar
The impact on the crude oil market will be more complex. On the one hand, geopolitical risks themselves will bring a risk premium to oil prices. On the other hand, this dispute directly involves several European energy importers and North Sea oil producers (such as Norway and the UK). Although the tariff threats do not currently specify commodity categories, any measures that hinder transatlantic trade flows could disrupt the global crude oil trade pattern and trigger market concerns about supply stability. Furthermore, Russia is a key energy supplier to Europe, and against the backdrop of the ongoing Russia-Ukraine conflict, any rift in the US-EU alliance could affect the coordination of European energy security strategies, thereby impacting the global energy supply and demand balance on a longer-term scale.
In the foreign exchange market, the euro/dollar (EUR/USD) will be the focus. Initially, the euro is typically pressured by risk aversion as Europe is the direct victim. However, with Europe demonstrating an unexpectedly united response (such as suspending the ratification of the EU-US trade agreement) and rising domestic opposition in the US, market logic may shift towards a "sell the news" scenario or concerns about a weakening of the dollar's hegemony. If the euro can hold key psychological levels and receives a strong but unified response from the EU, it has the potential for a short-term rebound. The dollar's trajectory is caught in a dilemma: its traditional safe-haven appeal may provide support, but the US's deliberate damage to alliances, escalating political infighting in Congress, and the prospect of potential trade losses are fundamentally bearish.
For the WTI crude oil futures contract (CL), geopolitical risk premiums will support oil prices. Support lies in the recent convergence of multiple moving averages, which also serves as a reference point for short-term supply and demand balance. Resistance is seen at previous highs; whether a breakout can be achieved will depend on whether the conflict substantially impacts energy supply or transportation. Close attention should be paid to whether the EU meeting addresses energy cooperation independence and whether US officials provide further clarification regarding the scope of tariffs.
IV. Outlook for the coming week: Political maneuvering will dominate the market; be wary of rapid shifts in sentiment.
Looking ahead to next week, financial market movements will be highly dependent on the political maneuvering in Greenland, rather than simply economic data. The following key events will dominate market sentiment:
1. Possible Path of Events: If the EU emerges with a firm but unified stance after its emergency meeting, while opposition in the US Congress intensifies, the market may interpret this as a reduced likelihood of tariffs being implemented, potentially leading to a temporary rise in risk appetite. This could result in a partial pullback in gold and the Japanese yen, while the euro and European stocks rebound. Conversely, if the Trump administration maintains its hardline stance, or if dialogue between the US and Europe breaks down, risk aversion will dominate the market, with gold, the US dollar, and US Treasury bonds potentially rising in tandem (indicating a purely safe-haven market), while risk assets will come under pressure.
2. Restructuring of Asset Correlation: As the institutional report in the material points out, the traditional "US Treasury bonds - US dollar - gold" correlation is failing. Next week, we may see the US dollar and gold strengthen in tandem due to the same safe-haven driver, or we may see a pattern of the dollar falling and gold rising due to damage to US credit. Traders need to abandon the mindset of simply relying on historical correlations and pay more attention to the specific movements of fund flows.
3. Impact on US Stocks: The tariff threat directly targets Europe, and if implemented, it will raise US import costs and consumer prices, contradicting the Federal Reserve's anti-inflationary goals. Simultaneously, corporate profit prospects face new uncertainty. Therefore, the impact on major US stock indices such as the Dow Jones Industrial Average is generally bearish. However, if Congress successfully blocks the tariff threat, the market may interpret it as a reduction in political risk, thus creating a short-term positive. Overall, political uncertainty itself will suppress risk appetite in the US stock market.
The Greenland crisis has elevated geopolitical risk to a core position in market pricing. The market will likely price this out early next week, inevitably leading to increased volatility. Traders' key task is to closely monitor every statement from European and American officials and every subtle clue in the US Congressional legislative process, accurately grasping the rapid shifts in market sentiment between "risk aversion" and "risk easing." Against the backdrop of structural "decoupling" and rising populism, such market turmoil triggered by political surprises may become more frequent in the future; flexibility and a deep understanding of fundamental logic will be crucial.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
