By Paul R. La Monica

Gold has bedazzled investors this year, surging nearly 30%. But the precious yellow metal has lost some of its shine since the election.

President-elect Donald Trump's full-blown embracing of Bitcoin could be a problem for gold. Crypto enthusiasts also seem heartened by comments that Federal Reserve Chair Jerome Powell made Wednesday, where he said Bitcoin was "like gold -- it's just virtual and digital."

Some analysts think gold could continue to lose appeal in the coming year, as investors (and potentially the federal government) cozy up to Bitcoin even further.

Rep. Sen. Cynthia Lummis of Wyoming, a Trump ally, introduced a bill in July that calls for the Treasury Department to buy one million Bitcoin over five years and hold them in a Strategic Bitcoin Reserve.

What's more, the bill suggests that Federal Reserve regional banks could sell some of their gold holdings and use the proceeds to purchase Bitcoin.

Add all that up, and it's easy to see why gold prices have fallen about 3% since Election Day, while Bitcoin has soared more than 30% to above $100,000. Investors have shunned gold in favor of crypto. According to the World Gold Council, global gold exchange-traded funds posted monthly outflows in November, marking the first outflows since April.

What's more, BlackRock's new iShares Bitcoin Trust ETF, the largest of numerous spot Bitcoin ETFs that launched earlier this year, now has more than $50 billion in net assets. That's more than the firm's gold ETF; the iShares Gold Trust, which made its debut in 2005, has $33 billion.

This trend of Bitcoin outperforming gold could continue. It's undeniable that crypto enthusiasts now have fans in the highest levels of Washington.

"Given the increasing support Bitcoin is receiving from both governments and investors, it is very likely to be adopted as a national reserve currency," said Anton Chashchin, founder and CEO of N7 Capital, a private fintech group, in a report.

"A Bitcoin reserve could diversify assets and serve as a hedge, especially amid concerns over the dollar's declining value," Chashchin added.

Others noted that Powell's comments on Bitcoin are an encouraging sign as well.

José Torres, senior economist at Interactive Brokers, said in a report that Powell's remarks "quelled concerns that the central bank views the digital currency as a challenger to the U.S. currency, while propelling hopes that more monetary policy leaders will embrace the space."

But gold still has a place in portfolios, despite the emergence of Bitcoin, as the precious metal isn't subject to nearly as much volatility. Since 2013, the digital currency has tended to have 70% to 80% pullbacks roughly every four years, often dropping alongside a falling stock market, Jason Pride, chief of investment strategy and research at Glenmede, and Michael Reynolds, the firm's vice president of investment strategy, pointed out in a report.

"If downside protection is a key characteristic for stores of value, Bitcoin appears to offer little in the way of stability," they wrote.

Because of that, Bitcoin doesn't have quite as clear an investing or economic purpose currently.

"Bitcoin remains an asset in search of utility -- until then, it is likely to remain a speculative asset that is ill-suited for inclusion in a diversified portfolio," Pride and Reynolds wrote.

Still, one money manager argues that the two assets could go hand in hand.

"Both are interesting long-term stores of value. Ironically, if they were more correlated, people may debate the differences less but it's that very lack of correlation that makes them such an interesting pair," said David Dziekanski, CEO and chief investment officer of Quantify Funds. The firm recently launched the STKD Bitcoin & Gold ETF, a fund that owns both crypto and precious metals.

"The right way to frame Bitcoin and gold isn't as adversaries but rather as two assets that, taken together, can provide significant diversification and potential return for a portfolio," he added.

Even Glenmede's Pride and Reynolds conceded that Bitcoin would benefit from "greater market acceptance and/or meaningful government support."

Given the rise of Bitcoin ETFs from several top money management firms and the incoming Trump administration's wholehearted backing of crypto, it looks like Bitcoin now has ample support from both Wall Street and Washington.

Write to Paul R. La Monica at paul.lamonica@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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December 07, 2024 02:00 ET (07:00 GMT)

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