Gold Has Been a Dark Horse in 2024, but Will It Last?

While traders have been focused on stock markets like the S&P 500 and spot Bitcoin exchange-traded funds like BlackRock's IBIT, gold's returns just surpassed them both.

Gold outperformed both the S&P 500 and BlackRock’s IBIT exchange-traded fund (ETF) in 2024, recording a 29% gain.

At $2,660 per ounce, gold's returns surpassed IBIT's 24% gain since its January 11th inception and outperformed the S&P 500's gains of around 20%.

“Gold has been climbing higher tortoise style,” said Bloomberg Intelligence analyst Eric Balchunas.

The precious metal's performance was fueled by rising tensions between Iran and Israel, which boosted demand for safe-haven assets.

Meanwhile, Bitcoin dropped this week, with Standard Chartered's global head of digital assets research, Geoff Kendrick, noting that gold is better suited for hedging against geopolitical risks, while Bitcoin protects against traditional finance issues.

However, while gold surged initially amid geopolitical tensions, historical data suggests its outperformance may not be sustained.

During the US-Iran escalation in 2020, gold initially outpaced other assets, but Bitcoin rebounded more strongly in the following months.

This pattern has been consistent in recent years, according to JAN3, the developer behind the Aquabitcoin digital wallet.

Bitcoin's ability to bounce back more sharply than gold was observed during major events like the COVID-19 pandemic, the 2020 US election, and Russia's invasion of Ukraine.

Usually, it takes about 60 days for Bitcoin to recover after massive geopolitical events, according to a recent report by BlackRock.

So, should investors choose gold or Bitcoin? Matt Hougan, CIO at Bitwise, addressed this question in a recent blog.

He argues that it boils down to whether investors prioritize higher returns or lower risk.

Using Bitwise's estimates and comparing traditional stock and bonds portfolios with up to 5% allocation to either Bitcoin or gold, Hougan analyzed their performance.

The simulation was based on data from January 2014 to September 26, 2024.

Portfolios with 5% Bitcoin showed a yield of over 208% on the investment, while a similar gold allocation yielded just over 100%.

For Hougan, the answer to which asset to choose is clear: “Bitcoin.”