Will Bitcoin ETF follow in gold’s footsteps?

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Will Bitcoin ETF follow in gold’s footsteps? teaser image

(Kitco News) – The gold market continues to hold its own early in the new year as geopolitical turmoil in the Middle East supports safe-haven demand. However, it’s not gold that is attracting a lot of attention.

We saw history made this week after the Securities Exchange Commission approved 11 spot Bitcoin exchange-traded products. What makes the announcement so interesting is that it was preceded by significant confusion. A day before the SEC announced its decision, its social media account was hijacked and a fake announcement was released.

Interestingly, the new ETFs haven’t provided any new momentum for the digital currency. Bitcoin prices are ending the week pretty much where it started. However, most analysts recommend investors look past the short-term price action and if you want to know where cryptocurrencies are headed, you only have to look at gold.

The first gold ETF was launched back in 2008, and it completely transformed the market, creating new opportunities for a wide range of investors. By 2011, gold prices hit its first record highs above $1,800 an ounce. To this day, ETF investor demand remains an important pillar of the marketplace.

The new Bitcoin ETFs will create new opportunities and attract a wider variety of generalist investors. These new ETFs are backed by the world’s biggest asset management firms, including BlackRock, VanEck, and Grayscale, to name just a few. Bitcoin is no longer a fringe asset.

Some analysts have said this could impact the gold market as the market continues to digest the latest evolution in cryptocurrencies. When it comes to accessible alternative assets, gold has always been at the top of the list; it’s liquid, a store of value and has low correlations to the broader marketplace; however, Bitcoin also meets this criteria and now there is a new dimension that puts it on par with gold: it’s accessible.

In an interview with Kitco News, Joy Yang, Global Head of Index Product Management at MarketVector Indexes, said the approval of a Bitcoin ETF could keep gold prices range-bound near $2,000 an ounce through most of the year as the cryptocurrency becomes an attractive alternative asset.

“A Bitcoin ETF will be the shiny new thing in the market, and a lot of investors like shiny new things,” she said.

We have already seen how solid demand for Bitcoin has impacted the gold market. In 2021, gold prices were affected by roughly 3%, as FOMO (Fear of Missing Out) drove Bitcoin prices to record highs of nearly $69,000 per token.

A lot has changed in the last four years and it's unlikely we will see that big of an impact this time around. While Bitcoin ETFs are shiny and new, we have seen in the last couple of years that when uncertainty is high, investors continue to prefer investments that they can hold that have tangible value. Gold has thousands of years of history as being a store of wealth and value right now.

While investment demand may remain sluggish, central banks continue to buy gold nearly as fast as it can be mined out of the ground. This past week The People’s Bank of China bought nine tonnes of gold in December. The buying frenzy has slowed, but it hasn’t disappeared.

Official sector demand has become another important pillar for the gold market and according to many analysts, this sector should continue to support gold above $2,000 an ounce through 2024.

Kitco Media

Neils Christensen

Time to Buy Gold and Silver

Tim Moseley

UofM Consumer sentiment falls to 63, providing support for gold 2% gains

The gold market is holding on to solid gains Friday as U.S. economic data points to a growing risk of stagflation, as consumer sentiment continues to drop but inflation expectations rise sharplUofM Consumer sentiment falls to 63, providing support for gold 2% gainsy.

Friday, the University of Michigan said the preliminary reading of its Consumer Sentiment Index fell to 63, down from September's reading of 68.1. The data was significantly weaker than expected, as economists were forecasting a drop to 67.2.

"Consumer sentiment fell back about 7% this October following two consecutive months of very little change. Assessments of personal finances declined about 15%, primarily on a substantial increase in concerns over inflation, and one-year expected business conditions plunged about 19%. However, long-run expected business conditions are little changed, suggesting that consumers believe the current worsening in economic conditions will not persist," said Joanne Hsu, director of Surveys of Consumers, in the report.

The gold market was already seeing a significant rally ahead of the report. Still, the disappointing data has provided further support. December gold futures last traded at $1,925 an ounce, well above 2% on the day.

While falling consumer sentiment indicates weak consumption, the report also noted that inflation expectations jumped significantly. Consumers see inflation rising 3.8% by this time next year, up compared to 3.2% seen last month.

"The current reading is the highest since May 2023 and remains well above the 2.3-3.0% range seen in the two years prior to the pandemic," Hsu said in the report.

The survey also noted that long-term inflation expectations edged higher to 3.0%, up from 2.9%. However, consumer price expectations remain anchored in the new post-pandemic range.

"Long-run inflation expectations remain elevated relative to the 2.2-2.6% range seen in the two years pre-pandemic," the report said.

By

Neils Christensen

For Kitco News

Time to Buy Gold and Silver

Tim Moseley