The threats made by US President Donald Trump to take control of Greenland have triggered an alarm across markets, with investors flocking to gold and European defense stocks. This mass movement is driven by fears of a geopolitical rift that could potentially dissolve NATO, overturn the global order, and severely impact the US dollar. Investors have significantly increased their positions in gold and European defense stocks as a direct response to President Trump's threats to acquire control of the Danish territory of Greenland. The prevailing fear in the markets is a deep geopolitical crisis that could signal the end of the North Atlantic Alliance, destabilize the international order, and undermine the status of the US dollar. While analysts believe that gains in both of these "safe havens" may continue regardless of the final outcome regarding the Greenland issue, investors are currently facing a dilemma on how to prepare for the long-term geopolitical consequences.
Greenland as a detonator of uncertainty
Donald Trump is seeking to gain control of the Danish territory either through a purchase or even by military means. Greenland, however, has expressed no desire to join the United States, a position firmly supported by Europe and Canada. Although investors had previously treated these ambitions as mere rhetoric, the sudden US military operation that led to the capture of Nicolas Maduro in Venezuela has made them appear far more tangible. For those who had hoped for a calmer 2026 following the turmoil caused by tariffs the previous year, these developments represent an extremely worrying start to the year.
Multiple fronts of pressure
President Trump has also left open the possibility of intervening in the unrest in Iran, while the US administration's threats to prosecute Fed Chair Jerome Powell have reignited concerns over the independence of the central bank. Gold jumped more than 4% last week following the capture of Nicolas Maduro and reached a new historic high on Monday. At the same time, European defense stocks hit all-time highs, recording their largest weekly gain in over five years with a 10% increase. "If you look at gold prices, they are essentially 'shouting' that the markets are worried about geopolitical risk," stated Matthew Miskin, co-head of investment strategy at Manulife John Hancock Investments. Gold, which offers no yield, is traditionally considered a safe haven during periods of high uncertainty or intense volatility.
The global system under question
The US ambitions for Greenland could have broader consequences, not only for NATO but also for efforts to end the war in Ukraine, as well as for China's tensions with Japan and Taiwan. Analysts warn that a forceful seizure of Greenland by the US at the expense of Denmark—a NATO ally—would likely mean not only the end of the alliance but also a total upheaval of the balance of power. "It would call into serious question the global order that has been largely shaped by Bretton Woods and the end of World War II, when NATO was created," said Steve Kolano, CIO of Integrated Partners.
The rise of the European defense industry
If Europe is forced to rely less on the US for its security, it is unsurprising that investors are turning to European defense stocks, a sector that has more than tripled since the Russian invasion of Ukraine in 2022. The German company Rheinmetall rose by 19% last week, while the Swedish firm Saab soared by 22%. "With the rhetoric surrounding Greenland, this rally is being sustained," said Jeremie Peloso, chief European strategist at BCA Research.
Political risk: Difficult to calculate
Beyond gold and defense stocks, other investment options remain extremely difficult. "Political and geopolitical risk is very hard to value, and markets usually fail at it, as these are low-probability but high-impact events," noted Idanna Appio of First Eagle Investments. This explains why there has not yet been a broader upheaval, with global equities near all-time highs and Danish government bonds moving upward along with the rest of Europe. The picture could change dramatically if the US adopts a military approach to Greenland. As Jack Ablin of Cresset Capital stated, such a scenario "would be a massive event, causing a flight from risk in equities and the dollar." In the short term, investors estimate that the dollar and US Treasuries would benefit from a move toward safety. However, a rupture in transatlantic relations could reignite concerns about the status of the dollar. "I remain concerned that actions perceived as a violation of rules by the US could lead to shifts in capital allocations, returning money to Europe and Asia," warned Idanna Appio.
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