INVESTORS have piled fresh bets on gold and European defence stocks in response to United States President Donald Trump‘s threats to take control of Greenland, fearing a geopolitical rift that could end the North Atlantic Treaty Organisation, shatter the global order and damage the dollar.
Although gains in both are expected to continue regardless of what happens to Greenland, investors face the dilemma of how to position for any longer-term fallout.
Trump wants to gain control of the Danish territory, through a purchase or even military means, while Greenland does not want to be part of the US, a stance supported by Europe and Canada.
While investors have previously largely ignored these aspirations , the US seizure of Venezuela’s Nicolas Maduro in a surprise military raid has suddenly made them more tangible.
For investors hoping for less risk after last year’s tariff turmoil, the news makes for an uncomfortable start to 2026.
Trump has also weighed intervening in unrest in Iran, while the US administration’s threat to indict Federal Reserve Chair Jerome Powell has reignited concerns about its independence.
Gold jumped more than four per cent last week after Maduro’s capture and hit a new record high on Monday. European defence stocks hit fresh all-time highs on Monday and last week posted their biggest weekly jump in over five years, with a 10 per cent gain.
“You look at gold prices and they are just screaming that markets are concerned about geopolitical risk,” Matthew Miskin, cochief investment strategist at Manulife John Hancock Investments, said of the most recent rise in bullion.
Non-yielding gold is traditionally seen as a safe haven for investors during wider market uncertainty or volatility. Many investors have been calling for a large exposure to gold, including hedge fund manager Ray Dalio, who last year noted a big relative underperformance by US stocks.
US ambitions of acquiring Greenland could have far-reaching implications, not just for Nato but also efforts to end the war in Ukraine and China‘s tensions with Japan and Taiwan.
If the US forcibly took Greenland from fellow Nato member Denmark, it would likely not only mark the end of the military alliance but the wider balance of power, analysts say.
“It would call into question much more the global order that’s essentially largely been established since Bretton Woods II, (or) the end of World War 2, when Nato was created,” said Steve Kolano, chief investment officer at Integrated Partners.
If Europe must rely less on the US for its defence, it is no surprise that investors are buying European defence stocks, a sector t ha t’s more than tripled since Russia’s 2022 invasion of Ukraine.
Beyond buying gold and defence stocks, other trades are more difficult for investors to pick .
“Political (and) geopolitical risk is very hard to price and markets typically do a very poor job of it, given that these are big-impact, but low-probability events,” s aid Idanna Appio, portfolio manager at First Eagle Investments, who does own some gold as a hedge against geopolitics.
That helps explain why there has been little broader impact, with world stocks at near record highs and Danish government bonds rallying alongside European peers.
Things could change quickly if the US took a military approach to Greenland, which Cresset Capital CIO Jack Ablin said, unlike Venezuela, “would be a big deal, sparking risk aversion in equities and (the) dollar”.
Traders reacted immediately when Moscow acted on its Ukraine threats, sparking major moves in oil, the euro and stocks.
“If the US were to seize Greenland by force, or maybe not by force, but under some sort of coercion, … you would have a rally towards Treasuries, you’d have a sell-off in European government bonds, which quality investors wo ul dn’t see as a haven,” said Natixis’ head US economist Christopher Hodge.
Investors reckon that shortterm, the dollar and Treasuries would benefit from a rush to safety. However, a breakdown in transatlantic relations could see that US pull fade and a return of worries about the dollar’s status, which flickered around last April’s tariff announcement.
“I remain nervous that actions that are seen as the US breaking the rules of the road, could lead to shifts in asset allocation, bringing money back to Europe, back to Asia,” said First Eagle’s Appio
The writers are from Reuters
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