Bitcoin’s wild rally to $50,000 draws more and more investors away from gold
Investors are turning away from gold as its digital rival Bitcoin takes first place in the race between the hottest hedges against inflation and demonetization.
Data collected by the Commodity Futures Trading Commission shows a decline in hedge fund interest in the precious metal as Immediate Bitcoin focus shifts to rising nominal yields and prospects for a better-than-expected US economic recovery. According to the data, net long positions in Comex gold futures shrank by 1.7 per cent to 134,733 in the week ended 9 February.
At the same time, the data also showed a decline in short positions in gold futures by 2,191 contracts to 47,093. The survey period saw an uptrend in gold prices, which attempted to break above the resistance level of $1,850 an ounce.
Nevertheless, the market lacked sufficient upward momentum, which led to the precious metal correcting lower in the follow-up sessions.
Bitcoin (Go to buy bitcoins by instant transfer guide) fared better than the traditional safe-haven asset. Net long interest in the BTCUSD instrument rose from 12,267 on 27 January to 28,666 on 11 February.
Meanwhile, short contracts for the same pair rose from 1,267 to 1,873 over the same period, according to DataMish.com.
The BTC/USD exchange rate rose from $29,000 to as high as $48,912 amid hopes of booming institutional adoption – led by Tesla’s $1.5 billion investment and Mastercard and BNY Mellon announcing plans to launch crypto-enabled services later this year.
According to a report by Bloomberg Intelligences Senior Commodity Strategist Mike McGlone, investors converted some of their gold capital to speculate on bitcoin, leading to a drop in demand for the precious metal and a rise in the case of the benchmark cryptocurrency.
As evidence, McGlone cites two metrics: the Grayscale Bitcoin Trust and gold-tracking exchange-traded funds. The former grew from 1 per cent to 10 per cent of the $210 billion tracking gold ETFs in 2020, indicating a massive outflow of capital from the precious metals market to cryptocurrency.
„In a world that’s going digital,“ McGlone said, „it’s logical to expect more funds to flow towards bitcoin and away from precious metals.“
Bitcoin is rising towards $50,000 after attracting high-profile institutional investment. Source: BTCUSD on TradingView.com
„Absent a major technological breakdown, old guard gold allocators are particularly at risk as cryptocurrency becomes a reserve asset and Bitcoin becomes more prudent as a 1-5% of investable assets,“ McGlone said.
More bitcoin gains on the horizon?
Gold is expected to fall below $1,800 by the end of 2021, according to Morgan Stanley. The bank said the precious metal faces prospects of a faster-than-expected US economic recovery and weaker inflation, which would reduce its demand against better bond yields.
„Price dynamics are poor, which means commodities that fall often tend to fall further,“ said Andrew Sheets, chief cross-asset strategist at Morgan Stanley. „And current economic data improving has often led to gold underperforming other assets.“
Bitcoin faces similar risks as its price shoots to new record highs in a row. Many analysts believe the cryptocurrency market is overheated, requiring bear intervention – a 30-40 per cent correction before it resumes its upward trend.
Nonetheless, investments by companies such as Tesla and MicroStrategy at higher price levels have given bitcoin (Go to Plus500 bitcoin buying guide) psychological price bottoms above $30,000 – still higher than its 2019 bubble high of $20,000.