Bitcoin correction risk rises, gold price hitting new highs frequently, what are the factors driving up the price of gold?

Inflation concerns persist, with rumors of a potential war between Iran and Israel causing Bitcoin to briefly drop below 65K, while gold prices continue to hit new highs this year. Isn't Bitcoin ETF seeing more inflows than gold ETF? Who is buying gold? What are the reasons driving up its price?

Gold ETF Funds See Outflows for Nine Consecutive Months

Since the official launch of a Bitcoin spot ETF in the United States on January 11, people have often compared gold ETFs with Bitcoin ETFs, including the inflow speed of ETFs and the size of assets.

In an article published by Bloomberg ETF analyst Eric Balchunas on February 14, gold ETF funds saw a total outflow of $3.16 billion in 2024. Among the 14 gold ETFs, only 3 saw net inflows, with the largest GLD SPDR Gold Shares experiencing an outflow of up to $2.4 billion.

Are gold ETF funds flowing into Bitcoin? Is BTC digital gold or a risky asset?

According to a report from the World Gold Council, global physical gold ETFs have seen outflows for nine consecutive months, with $823 million flowing out in March. However, this is much lower than the -$2.9 billion in February and the average of -$2.4 billion over the past nine months. Except for Europe, other regions saw net inflows in March. Capital inflows in North America turned positive for the first time in 2024.

While the community celebrates Bitcoin's surge, it has completely overshadowed gold, which has been quietly rising. After breaking the 2020 high of $2,075, gold has repeatedly set new historical highs, even surpassing $2,400 yesterday, marking a 13% increase year-to-date.

Central Banks Continue to Increase Gold Reserves

The report shows that gold ETF funds have indeed seen outflows for nine months. So where does the buying interest in gold come from? According to another report from the World Gold Council, central banks around the world continue to increase their gold reserves. February data shows that global central banks added 19 tons of gold, marking the ninth consecutive month of growth. The People's Bank of China is the largest buyer, adding 12 tons of gold in February, bringing its gold reserves to 2,257 tons. While its gold reserves have been growing for 16 consecutive months, the proportion of gold in its total reserves remains around 4%.

The top buyers year-to-date are China, Turkey, India, Kazakhstan, and the Monetary Authority of Singapore, which saw its gold holdings increase for the first time since September 2023. Sellers include the Philippines, Uzbekistan, and Russia.

The increase in gold holdings by central banks may also be related to the issue of "de-dollarization," especially for countries not intending to ally with the United States. Accumulating gold may help them "move away from the dollar" to avoid significant impacts during economic sanctions.

Hedging Demand Driven by Inflation and Geopolitical Concerns Boost Gold Prices

In addition, the inability of inflation to ease and recent geopolitical risks have driven demand for hedging with gold. The ongoing Russia-Ukraine war, which has lasted for two years without resolution, and the escalating risk of a China-Taiwan conflict, along with a report from the Wall Street Journal citing sources saying that Iran will launch a direct attack on Israeli territory within 48 hours, have caused the VIX panic index to reach its highest level in 2024, leading gold to once again hit a historic high yesterday.

While the stock market continues to decline recently, Bitcoin also faces the risk of a pullback. Some say Bitcoin is a hedge against inflation or even a substitute for gold, but at this moment, its trend seems to be in sync with risky assets!

Inflation concerns and war tensions push Bitcoin down to $65K, with the approval of Hong Kong ETF becoming a focal point.