In early trading on Wednesday, driven by the escalation of the geopolitical crisis in Greenland and the collapse of the Japanese government bond market, the demand for safe havens increased sharply. The spot gold price stood at the integer mark of US$4,800 per ounce for the first time in history, and then continued to set new record highs, trading at US$4,819.75 per ounce as of press time. In sharp contrast, spot silver fell in the short term, once falling below $94 per ounce, and finally closing at $94.494 per ounce, a slight increase of 0.24% during the day.

Geopolitical crisis in Greenland intensifies differences between the United States and Europe, boosting safe-haven demand for gold

U.S. President Trump, who is attending the World Economic Forum in Davos, Switzerland, has not given up on seizing Greenland. This statement triggered a chain reaction, and the Prime Minister of Greenland directly called on the people to prepare for a possible military invasion, although he also admitted that the probability of this happening was low. European countries have expressed clear opposition to Trump's plan, and the market is worried that this move will trigger a destructive trade war. French President Macron bluntly stated that Europe needs to enhance its sovereignty and avoid falling into "vassalization and bloody politics." Canadian Prime Minister Carney even bluntly stated that the rules-based international order has actually died. The war of words at the Davos Forum clearly exposed the rapidly deteriorating relations between the United States and its traditional European allies. This situation has directly disrupted the global financial market. The U.S. dollar exchange rate has been under pressure and downwards. Investors have turned to safe-haven assets such as precious metals, which has become an important driver of higher gold prices.

Japanese government bond market collapse triggers chain reaction in global markets

The collapse of Japan's sovereign debt market has further amplified market concerns about the fiscal conditions of major economies and spawned "devaluation trades" in which investors avoid currencies and government bonds. Japanese Prime Minister Sanae Takaichi's campaign promise to cut food taxes became the trigger that crushed the Japanese government bond market. Yields on 30-year and 40-year Japanese government bonds soared by more than 25 basis points in a single day on Tuesday, hitting record highs. Indicators measuring the liquidity of Japanese government bonds simultaneously climbed to record highs, and the market showed an obvious "buyer's strike" state.

As Japan's snap election on February 8 approaches, investors' concerns about subsequent market fluctuations continue to intensify, and this turmoil has also produced significant spillover effects. Citigroup Global Markets pointed out that the sharp increase in the volatility of Japanese government bonds may be transmitted to other asset classes, especially U.S. Treasury bonds, thus forcing investors to reduce the size of their overall portfolios. Mohammed Apabahai, head of Asia trading strategy at Citigroup, said risk parity funds may need to sell off one-third of their current exposure to assets, which could trigger a bond sell-off of up to $130 billion in the United States alone.

The Korean and British government bond markets are also considered to be extremely vulnerable to this fluctuation. Since the beginning of July 2024, the losses on Korean government bonds held by foreign investors have exceeded 10%, and there is a risk of stop-loss selling. Masahiko Loo, senior fixed income strategist at State Street Investment Management, bluntly said that the current situation in the Japanese market is equivalent to market pricing experiencing a "Trusted moment". This claim originates from former British Prime Minister Liz Truss, whose unfunded tax cut plan triggered a vicious sell-off in the British bond market and ultimately led to her resignation.

U.S. and Japanese finance ministers join forces to maintain stability, rumors of Europe selling U.S. debt refuted

In the face of intensifying market fluctuations, the finance ministers of the United States and Japan communicated and released stability maintenance signals during the Davos Forum. U.S. Treasury Secretary Scott Bessent said he has contacted Japan's Finance Minister and believes Japan will issue remarks to calm the market. He pointed out that the Japanese market has experienced extreme fluctuations of "six standard deviations" in the past two days. If this kind of fluctuation occurred in the U.S. market, it would mean that the 10-year U.S. Treasury yield would surge by 50 basis points. Japanese Finance Minister Satsuki Katayama also called on market participants to remain calm after the sharp sell-off.

Bessant stressed that the decline in Japanese bonds predated Greenland-related news and he downplayed the impact of the geopolitical crisis on the bond market. In response to reports that Europe may sell off U.S. Treasury bonds to counter Trump's Greenland plan, Bessant directly dismissed it as a "false narrative." He said that European governments had not discussed such measures at all and that the relevant rumors were just the media seizing on a report from Deutsche Bank and over-interpreting it. Deutsche Bank strategist George Saravelos once pointed out in a report that Europe is the largest creditor of the United States, and the United States' dependence on overseas capital is its key weakness. The weaponization of capital is far more destructive to the market than trade flows. Although the words of the finance ministers had a certain effect, and Japan's 40-year government bond yield fell 6.5 basis points in early trading on Wednesday, the market's concerns have not completely dissipated.

Danish pension fund Akademiker Pension has made it clear that it plans to withdraw from the U.S. Treasury market before the end of this month. Michael Krautsburg, a senior manager at Germany's Allianz Global Investors, believes that increasing market volatility may help put pressure on Trump. However, UBS Group CEO Sergio Emotti warned that Europe's attempt to weaponize its holdings of U.S. Treasury bonds would be a "dangerous gamble." Market analysts pointed out that the Bank of Japan may use unlimited bond purchase tools to intervene in the market, but the implementation of this measure depends on whether the Japanese government can tolerate further depreciation of the yen. Ryutaro Kimura, senior fixed income strategist at AXA Investment Management Co., Ltd., said that if the Bank of Japan actively intervenes to lower interest rates, the U.S. dollar-yen exchange rate is likely to break through the key psychological mark of 160.

There is still room for gold to rise, but silver is not a good time to buy now

Regarding the market outlook for precious metals, experts in the industry have clearly divergent views. Daniel Galli, senior commodities strategist at TD Securities, said that gold's rise depends on market trust. Although trust is currently under pressure, it has not yet broken. Once broken, gold's rising momentum will last longer. UBP Global Foreign Exchange Director Peter Kinsella clearly distinguished the investment value of gold and silver. He believes that investors should not expect silver to maintain its current high return levels and that buying silver at current prices is a "very crazy" move. Silver has risen by 50% to 60% in the past two to three months, and its implied volatility is at a high of 65%, and may even rise to 70%. He added that although the recent announcement by the United States that it would not impose tariffs on silver is a good thing, the substantial increase in U.S. silver inventories may be diverted to other regions and drive down global leasing rates. The so-called serious shortage of physical silver is not true.

Kinsella pointed out that silver is currently more in a re-rating stage, and that a significant rise from current levels would require the gold/silver ratio to drop to around 40 or even 30, which is well below the historical average of 65. He predicted that if the gold price rises to US$5,000 per ounce by the end of the year and the gold-silver ratio rises slightly, silver prices will most likely maintain the current level. Unlike silver's caution, Kinsella is confident about gold. He said that even if the price of gold is at an all-time high, it is still worth buying. Events such as the arrest of the Venezuelan president and the geopolitical crisis in Greenland mark that the world has entered an era of prominent resource nationalism among major powers. The variability of geopolitical themes has made precious metals a better investment choice than currencies. Gold obviously still has significant room for growth.