Gold prices (XAU/USD) surged to a record high of nearly $4,675 during the early Asian session on Monday. This jump followed US President Donald Trump’s announcement of tariffs on eight European countries that opposed his Greenland acquisition plan.

Trump’s Tariff Plan

Trump intends to implement a 10% tariff on imports from Denmark, Sweden, France, Germany, the Netherlands, Finland, the UK, and Norway starting February 1. The announcement has raised concerns over potential European retaliation, driving investors towards gold as a safe-haven asset. EU ambassadors are working to persuade Trump to reconsider the tariffs while also preparing their own retaliatory measures. Meanwhile, positive economic reports from the US have pushed back expectations for Federal Reserve (Fed) rate cuts to June and September. The belief that the US central bank will be able to keep interest rates higher for longer supports the US Dollar (USD) while decreasing gold’s appeal. Central banks remain the biggest holders of gold, adding 1,136 tonnes worth about $70 billion to their reserves in 2022. Gold typically moves in the opposite direction of the US Dollar and Treasuries, often increasing when the Dollar weakens. Its price is influenced by factors such as geopolitical instability, fears of a recession, interest rates, and the Dollar’s strength. The rise in gold reflects a classic safe-haven rally amid geopolitical concerns. The unexpected announcement of tariffs against key European allies over the Greenland issue has introduced significant uncertainty into the market, overshadowing other key factors.

Opportunities and Risks for Traders

This heightened volatility offers opportunities for derivative traders. We suggest buying long-dated call options to benefit from potential price increases if trade tensions rise. Additionally, the high premiums allow for selling covered calls on existing physical gold holdings to generate income. It’s important to keep an eye on strong US economic data, which has tempered expectations for Fed rate cuts. In 2025, we observed a similar trend where robust job reports limited gold’s gains during global uncertainty. The market currently expects only one rate cut for the latter half of this year, potentially strengthening the dollar and putting pressure on gold prices if tensions ease. This situation echoes the market unease seen during the US-China trade disputes in the late 2010s, which also led to sustained rallies in gold. Data from the World Gold Council shows that central banks continued their buying spree, adding another 1,050 tonnes to their reserves in 2025. This ongoing demand from official sources strongly supports gold prices. The February 1st tariff deadline is now a key date to watch. The market is likely to react sharply to news of any European retaliation or talks to de-escalate tensions. We anticipate high implied volatility as traders adjust their positions around this event. The broader market fear is reflected in the CBOE Volatility Index (VIX), which has risen above 22, its highest level since the regional banking concerns in early 2024. This signals that investors are seeking protection against potential losses in equities. This risk-averse sentiment provides a favorable environment for non-correlated assets like gold. Create your live VT Markets account and start trading now.

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