Gold ETFs Hemorrhage Billions as Investors Favor Bitcoin

Once the darling of inflation-wary investors, gold ETFs have fallen dramatically out of favor in 2024. The 14 leading funds have bled over $2.4 billion in exits this year through February 14th, based on data from Bloomberg analyst Eric Balchunas.

Hardest hit were BlackRock’s pair of funds, iShares Gold Trust Micro and iShares Gold Trust, which leaked $230 million and $424 million respectively.

TLDR

• Leading gold ETFs have seen $2.4 billion in outflows so far in 2024, while Bitcoin ETFs have attracted $3.89 billion
• Largest gold ETF outflows are from BlackRock’s iShares Gold Trust Micro and iShares Gold Trust at $230 million and $424 million
• Gold prices have declined 3.4% YTD to $1,993 per ounce on Feb 14th, while Bitcoin has surged 23.5% to $52,000
• Factors hurting gold include a stronger dollar, higher bond yields, lower inflation expectations reducing its safe haven appeal
• Bitcoin is gaining favor as an alternative store of value and inflation hedge due to its capped supply and decentralization

The outflows coincide with lackluster price action in the precious metal, which has shed 3.4% year-to-date. This compares to a 23.5% explosion in Bitcoin over the same timeframe, igniting debate over which asset makes the superior inflation hedge. While gold has reliably filled that role for decades, cracks in its armor are showing.

Meanwhile it’s a pretty bad scene right now in the gold ETFs category… via @SirYappityyapp in our just published weekly flow note pic.twitter.com/C0T17JZpiA

— Eric Balchunas (@EricBalchunas) February 14, 2024

A primary drag on performance is the US dollar’s vigor, which gold tends to move opposite. As currency strength saps investor demand, bond yields marching higher deliver an additional blow.

With tamer inflation readings also eroding gold’s appeal as a safe haven, the perfect storm of negatives has sent its price tumbling to $1,993 per ounce – flashing warning signs for the commodity’s outlook.

Meanwhile, enthusiasm for Bitcoin burns white-hot. The blockchain-based cryptocurrency has attracted $3.89 billion into its suite of exchange-traded funds (ETFs) in 2024.

Far from leaking assets like their gold counterparts, Bitcoin ETFs are enjoying record inflows and trading volumes. The shift in fortunes illustrates a changing of the guard, as investors increasingly view Bitcoin as the new gold.

Can someone do a wellness check on @PeterSchiff? pic.twitter.com/mUc2xGwK2j

— Jameson Lopp (@lopp) February 14, 2024

Underpinning Bitcoin’s rise are a number of distinctive advantages as a store of value. The pre-programmed supply cap of 21 million coins provides immutable scarcity, contrasting the malleable supply schedules of fiat money.

This makes Bitcoin a perceived superior hedge against inflation, as central banks lose their ability to erode value via monetary expansion. Additionally, Bitcoin’s decentralization shields it from government intervention, offering insulation against geopolitical hazards.

Evidence suggests the institutional embrace of Bitcoin and crypto more broadly still remains in early innings. As regulated investment vehicles like ETFs promote further adoption, Bitcoin may continue supplanting gold as the inflation hedge of choice.

If its current trajectory persists, a flippening of their market dominance seems inevitable. For stagnant gold bugs enduring persistent losses, hopping aboard the Bitcoin bandwagon might soon make prudent sense.