Gold ETFs in Focus for 2024
Central Bank Gold Purchases at a Record High
Physical Gold ETFs Outperform Futures by 5 Percentage Points
As the Year of the Blue Dragon approaches in 2024, reports highlighting promising asset classes are flooding the market. The conclusions largely converge on four themes: bonds, gold, Bitcoin, and AI-related equities. In particular, amid persistent debate over the future of the U.S. dollar, attention is intensifying on gold, which has broken out above the upper end of a three-year trading range, and Bitcoin, which is awaiting approval of a spot ETF.
The common underlying assumptions are interest rate cuts and a weaker U.S. dollar. In equity markets, direction often matters more than speed. At last week’s Federal Open Market Committee (FOMC) meeting, the U.S. Federal Reserve signaled a potential pivot in monetary policy. By contrast, the Bank of England (BoE) and the European Central Bank (ECB) maintained a cautious stance, and Norway’s central bank even raised its policy rate. While the picture may differ in local currency terms, further sustained strength in the U.S. Dollar Index appears increasingly difficult. This creates a favorable environment for alternative assets such as gold, a traditional dollar hedge, and Bitcoin, often described as a digital alternative.
The 1970s were a period of global chaos. The Fourth Middle East War and the first and second oil shocks triggered severe inflation, while the dollar-centered Bretton Woods system ultimately proved unsustainable and collapsed. History may not repeat exactly, but it often rhymes. The U.S.–China trade conflict that began during the Trump administration has evolved into broader protectionism, exemplified by the U.S. Inflation Reduction Act (IRA) and Europe’s Critical Raw Materials Act (CRMA). The World Trade Organization (WTO), once the backbone of free trade, has effectively lost its influence. Meanwhile, the wars in Ukraine and Israel continue to carry the risk of further escalation.
Free trade—often summarized as “globalization”—lowered labor costs, enabled capital mobility, and supported economic growth while suppressing inflation. Protectionism tends to produce the opposite outcome. While inflation may fluctuate in the short term, its upward pressure has become a structural risk. This helps explain why many central banks, excluding the U.S. Federal Reserve ahead of an election year, remain cautious about cutting rates too quickly.
A look back at asset performance during the 1970s reinforces the case for gold. From 1965 to 1981, a prolonged period of rising interest rates, the S&P 500 moved largely sideways for 17 years. Gold prices, however, surged dramatically until 1980. The rally reflected growing doubts about the dollar and strong demand for a hedge against global uncertainty.
Bitcoin, which has risen about 150% year-to-date, is also increasingly viewed as a digital alternative to the dollar. Expectations for spot ETF approval in the first quarter of next year add to its appeal, particularly given its strong performance this year despite rising interest rates and heightened geopolitical risk. Supporters also point to Bitcoin’s fixed supply cap of 21 million coins, arguing that it differs fundamentally from fiat currencies that can be expanded and thereby fuel inflation.
Yet the differences between gold and Bitcoin are clear. Gold served as the foundation of monetary systems under the gold standard from the 19th through the 20th century and remains a core asset for central banks today. In fact, global central banks have been net buyers of gold every year since 2010. By the third quarter of 2023, purchases were up 14% year-on-year, marking the largest amount on record for the period. Bitcoin, by contrast, is not an asset that central banks purchase. While central bank digital currencies (CBDCs) under development worldwide may increase interest in digital assets, they could just as easily become substitutes rather than complements to Bitcoin. From a supply-and-demand perspective, central banks are a source of demand for gold, whereas they may ultimately act as competitors to Bitcoin.
In Korea, three gold-related ETFs are currently listed: TIGER Gold Futures (H) and KODEX Gold Futures (H), which invest in gold futures, and ACE KRX Physical Gold ETF, which holds spot gold. Year-to-date performance shows that the physical gold ETF has outperformed futures-based ETFs by about 5 percentage points, largely because futures investing incurs roll-over costs when contracts are extended.
Equity markets remain optimistic about a monetary policy pivot. Still, assets that can hedge against renewed inflation and macroeconomic uncertainty are essential. Bitcoin, given its high volatility, may be better suited to tactical strategies that capitalize on near-term catalysts such as potential spot ETF approval in the first quarter and the halving event in the second quarter. Gold, by contrast, is a traditional alternative asset actively accumulated by central banks and is more appropriate for long-term strategic allocation.
Both are alternative assets—but treating them with the same investment strategy would be a mistake. A differentiated approach can lead to more efficient and resilient portfolio management.