Gold price (XAU/USD) rose to a record high near $4,675 during the early Asian session on Monday. This increase followed the announcement from US President Donald Trump regarding tariffs on eight European nations opposing his Greenland acquisition plan.
Trump’s Tariff Plan
Trump plans to impose a 10% tariff on goods from Denmark, Sweden, France, Germany, the Netherlands, Finland, the UK, and Norway from February 1. The tariff threat has prompted fears of European retaliation, boosting gold as a traditional safe-haven asset.
EU ambassadors have agreed to intensify efforts to deter Trump from imposing these tariffs while preparing retaliatory measures. In contrast, positive US economic data have delayed expectations for US Federal Reserve (Fed) rate cuts to June and September.
The belief that the US central bank can maintain higher interest rates longer supports the US Dollar (USD) while reducing interest in gold. Central banks remain the largest gold holders, adding 1,136 tonnes worth around $70 billion to reserves in 2022.
Gold has an inverse correlation with the US Dollar and Treasuries, often rising when the Dollar depreciates. The metal’s price depends on geopolitical instability, recession fears, interest rates, and dollar behavior.
Given the fresh record high in gold, we are seeing a classic safe-haven rally driven by geopolitical fears. The surprise announcement of US tariffs against key European allies over the Greenland dispute has injected significant uncertainty into the market. This tension is currently overriding other fundamental factors.
Opportunities and Risks for Traders
This creates a high-volatility environment that derivative traders can use. We believe buying long-dated call options is a prudent way to gain exposure to further price increases if the trade dispute escalates. At the same time, the elevated premiums mean selling covered calls against existing physical holdings could generate income.
We must also watch the strong US economic data that has kept Federal Reserve rate cut expectations low. Looking back at 2025, we saw a similar pattern where strong jobs reports temporarily capped gold’s gains, even amid global uncertainty. The market is currently pricing in only one rate cut for the second half of this year, which could strengthen the dollar and create headwinds for gold if tensions ease.
This situation reminds us of the market jitters during the US-China trade disputes of the late 2010s, which also fueled sustained gold rallies. Furthermore, data from the World Gold Council confirmed central banks continued their record buying streak, adding another 1,050 tonnes to reserves in 2025. This persistent demand from official sources provides a strong underlying support for prices.
The February 1st deadline for the tariffs is now the most critical date on our calendar. The market will react sharply to any news of European retaliation or potential de-escalation talks. We expect implied volatility to remain high as traders position themselves around this event.
The broader market fear is confirmed by the CBOE Volatility Index (VIX), which has spiked to over 22, its highest level since the regional banking stress we saw in early 2024. This indicates that investors are actively seeking protection from downside risk in equities. This risk-off sentiment is a direct tailwind for non-correlated assets like gold.
