Geopolitical tensions are pushing investors toward safe havens, impacting financial markets on Tuesday. Investors are waiting for the ZEW sentiment data from Germany, while European Union and US tensions over Greenland are also in focus. The US Dollar has fallen against major currencies, most notably against the New Zealand Dollar. US President Trump plans to talk about protecting Greenland at Davos and has warned of tariffs on French wines if his demands are not met.

Gold Prices Rising

Gold prices have soared to a record high above $4,700 due to market uncertainty, gaining about 1% today. Silver has remained stable, trading above $94 after a 4.5% increase on Monday. US stock index futures have dropped by 1.2% to 1.6% during the European session. The US Dollar Index is down, falling below 99.00, with a 0.2% loss. In the UK, the unemployment rate remains at 5.1%, while employment rose by 82,000 in November. In Canada, annual inflation has increased to 2.4%, surpassing expectations. EUR/USD is gaining strength. Meanwhile, USD/JPY is near 158.50 with slight increases. A monetary policy meeting from the Bank of Japan is expected later this week.

Central Banks Buying More Gold

Central banks are boosting their gold reserves, purchasing a total of 1,136 tonnes in 2022. This supports their currencies during economic instability. Gold prices often move in the opposite direction of the US Dollar and risk assets. With Gold surpassing $4,700, this upward trend is likely to continue amidst ongoing geopolitical tensions. Buying call options on gold or gold-related ETFs is a smart way to take advantage of this movement. This trend is backed by central banks consistently increasing their gold reserves, with over 1,000 tonnes bought annually in both 2022 and 2023. The decline in US stock futures ahead of the Davos address indicates we should brace for significant price swings. We are considering buying straddles on major indices to profit from any large moves, regardless of the address’s outcome. Historically, uncertainty around US trade policy—much like during the 2018-2019 period—has led to sharp and unpredictable market changes, which is ideal for this strategy. The US Dollar’s weakness, particularly against the Kiwi and Aussie dollars, suggests that investors are moving away from US-specific risks. We should look to buy put options on the dollar index or call options on currency pairs like EUR/USD as it approaches 1.1700. This current weakness contrasts with previous crises where the dollar served as a safe haven, indicating that the market sees the current US policies as a key source of instability. With Canadian inflation reaching 2.4%, the Bank of Canada is likely to maintain a firm stance, creating a clear policy difference compared to a potentially uncertain US Federal Reserve. This divergence supports further declines in USD/CAD, so we are looking at structured products or put options to bet on the pair dropping below its current level of 1.3850. Create your live VT Markets account and start trading now.

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