Gold Price Is Still Cheap Relative To Bitcoin By This Measure

Gold reached an all-time high of $3,819 per ounce, up 45% this year and outperforming other asset classes, primarily driven by significant central bank accumulation. Emerging markets, including Poland, Russia, China, and India, are leading this trend, diversifying away from the U.S. dollar and hedging geopolitical risks, a strategy accelerated by the 2022 freezing of Russia's reserves. Consequently, central banks now hold more gold than Treasuries, with gold becoming the second-most held reserve asset globally, and some emerging nations directly sourcing from local mines to bypass dollar reliance. While recent ETF inflows indicate growing private investor interest, fund managers also identify gold as a 'crowded trade,' prompting questions about its sustained momentum.

Analysis

Gold has surged to an inflation-adjusted all-time high of $3,819 per ounce, posting a 45% year-to-date gain and establishing itself as 2025's best-performing asset class, outshining both the Magnificent 7 and bitcoin. The primary catalyst for this rally is a structural shift in demand driven by central banks, particularly from emerging markets like China, Russia, and India, which are actively hedging against the U.S. dollar and geopolitical risks. This de-dollarization trend, which accelerated after the 2022 freeze of Russia's reserves, has led to annual central bank gold purchases more than doubling over the past decade. Consequently, central bank gold holdings have surpassed their treasury holdings for the first time since 1996, and gold has overtaken the euro as the world's second-most held reserve asset. A notable development is the practice of emerging market central banks purchasing gold directly from local mines to bypass dollar-based markets. While the rally is institutionally led, with Poland being the largest official buyer in 2025 by adding 67 tonnes, there is significant potential for a second wave driven by private investors. North American gold-backed ETF inflows recently hit a multi-month high, yet these ETFs represent less than 1% of gold's market cap, compared to 7% for U.S. bitcoin ETFs, suggesting substantial room for growth. However, a recent Bank of America survey flags gold as the second-most crowded trade after the Magnificent 7, raising questions about whether the current momentum is sustainable or nearing a peak.

Key Decisions for Investors

• Given the strong, multi-year structural demand from central banks for geopolitical hedging and de-dollarization, investors may consider gold a core long-term holding rather than a purely tactical trade.
• Monitor gold-backed ETF flows closely, as the current low penetration relative to assets like bitcoin suggests that a significant increase in retail and private investor participation could provide the next major catalyst for price appreciation.
• Exercise caution regarding position sizing and risk management, as the identification of gold as the second-most 'crowded trade' signals elevated positioning which could lead to increased volatility and a sharper pullback on any negative sentiment shift.