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Gold rush vs Bitcoin frenzy

Retail investors have been flocking to relatively new spot Bitcoin exchange-traded funds (ETFs), yet they seem to be overlooking gold funds, despite the yellow metal consistently hitting new highs and outperforming Bitcoin over the past month.

Data from Morningstar reveals that during the first three months of the year, the nine new Bitcoin ETFs attracted approximately $27 billion in inflows, with a significant portion going to the iShares Bitcoin Trust and Fidelity Wise Origin Bitcoin fund. In contrast, precious metals funds experienced outflows, indicating that retail investors have largely missed the gold rally.

Gold is currently trading around $2,400 per ounce, near its recent record high, having surged by over 10% since mid-March. Meanwhile, Bitcoin prices have declined by about 8% in the past month, although Bitcoin has outperformed gold by a substantial margin so far this year.

This preference for Bitcoin over gold persists despite gold’s ongoing ascent and Bitcoin’s price volatility. Adam Sabban, senior analyst for equity strategies at Morningstar, observed that digital assets ETFs (primarily Bitcoin funds) attracted $770 million in inflows in April through April 15, while the top two gold ETFs reported combined outflows of about $370 million. Sabban also noted that gold mutual funds experienced outflows in the first quarter of this year.

Sabban remarked, “Gold continues to rise, but retail investors don’t seem interested in buying.” Meanwhile, larger money managers and central bank buying have been key drivers of the gold rally. Recent data from the World Gold Council highlights aggressive buying from countries like China, Turkey, and India.

Richard Mills, editor of the Ahead of the Herd commodities newsletter, explained, “Demand is being driven by ‘momentum buying’ by institutional investors, strong central bank buying, with developing nations in particular stocking up on bullion as insurance against having their foreign currency reserves frozen like happened to Russia after it invaded Ukraine; and geopolitical instability, with wars in Ukraine and Gaza still raging.”

Despite the surge in gold prices, some experts believe it’s not too late for average investors to capitalize on the gold rush. Rich Nuzum, executive director and chief investment strategist with Mercer, expressed a preference for gold over Bitcoin, citing gold’s tangible nature compared to Bitcoin’s lack of intrinsic value. Nuzum believes that gold should continue to serve as a reliable hedge against inflation concerns and geopolitical uncertainties affecting broader markets.