A Concise History of Gold ETFs: The Genesis of Gold ETFs
In November 2004, the inaugural gold ETF was launched in the United States, marking a significant milestone in financial markets worldwide.
At the time, gold was recovering from a 20-year bear market. Prior to the introduction of gold ETFs, investors had limited options, such as gold miner stocks, bullion, and futures contracts, each fraught with complexities like assessing miner fundamentals, managing storage, insurance, and trading inefficiencies.
ETFs revolutionized gold investment by offering investors globally seamless access to a liquid market without the burdensome requirements of insuring, transporting, and storing physical gold, heralding a new era of innovation.
Gold Bull Run Post-ETF Introduction
The impact of ETFs on gold prices was immediate, profound, and enduring, igniting an eight-year bull run that persisted until 2012.
To illustrate, in the eight years before GLD’s launch, the price rose by 16.84%, while in the subsequent eight years, it surged by 286.90%.
However, nuances exist. In the period preceding GLD’s launch, the price had already been on the rise, as acknowledged by one of GLD’s pioneers, Graham Tuckwell, attributing the ETFs’ success partially to the favorable market conditions.
Nevertheless, ETFs unequivocally fueled the upward trajectory.
What prompted this shift? What aspect of ETFs revolutionized gold investment?
According to State Street Advisors‘ 2006 analysis, ETFs streamlined gold investment, making it “easily accessible to a wider investor base,” likely initiating a revaluation of the asset class, democratizing gold investment, as described by George Milling-Stanley, vice president and chief gold strategist for SPDR ETFs at State Street Global Advisors.
Comparison between Gold and Bitcoin: A Parallel
How do bitcoin ETFs compare to the GLD narrative?
The concept of ‘digital gold’ is familiar among bitcoin enthusiasts, drawing parallels between the two assets.
Similarly, bitcoin ETFs are ‘democratizing’ access to bitcoin, akin to GLD’s impact on gold investment.
Challenges like self-custody or trusting exchanges have likely hindered mainstream bitcoin adoption, hurdles that ETFs alleviate.
Echoes from gold ETF history resound today. Concerns raised by bitcoin ETF skeptics mirror those of gold ETF detractors in the past.
In Practice: Initial Results
The most significant disparity between gold and bitcoin ETFs lies in their inflows and price performance.
Bitcoin ETFs have surpassed the transformative impact of gold ETFs, achieving unprecedented growth in a fraction of the time.
Blackrock’s ETF (IBIT) reached $10B in just seven weeks, a feat that took GLD two years to accomplish.
Bitcoin ETFs are not only outpacing gold ETFs but also absorbing their inflows.
What lies ahead? While similarities exist, we are venturing into uncharted territory:
Eric Balchunas, a Senior ETF Analyst at Bloomberg, anticipates that Bitcoin ETFs will exceed Gold ETFs in assets under management (AUM) within two years. Conversely, Matt Hougan, the Chief Investment Officer (CIO) at Bitwise, forecasts that Bitcoin ETFs could reach $200 billion before the next halving event.
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