From Bitcoin to bullion: The surprising pivot of young investors towards gold

(Kitco News) - While gold bugs need no new incentive to invest in precious metals, and the recent all-time highs rewarded committed precious metals investors, plenty of people and money remain on the sidelines. Gold is still very much an ‘alternative’ asset and makes up only 1% of global investment assets.

And as the crypto winter comes to a close, with Bitcoin up over 150% in 2023 and the total crypto market cap doubling last year, the contrast between the recent spot Bitcoin ETF frenzy, on the one hand, and the ongoing outflows from gold ETFs on the other couldn’t be more stark.  

Gold investors have traditionally skewed older, while crypto has more recently captured the imagination of the young. But might that be changing? Could a youth boom in precious metals be on the way?

China’s youth go for the gold 

Recent reports from China would seem to suggest it is. An October article by Zhu Junxi for Sixth Tone points to a powerful demographic shift in the world’s largest gold market.

Zhu writes that buying gold has long been associated with older generations in China, but the latest data show that the majority of gold consumers were born since the 1990s.

“In a 2023 report on the jewelry and accessories industry, China’s leading e-commerce platforms, Tmall and Taobao, revealed that the primary consumers of gold jewelry are those born after the 1990s,” Zhu notes. “And in 2022, an insight report by consultancy firm Mob Data found that Gen Z’s inclination to purchase gold surged from 16% in 2016 to 59% in 2021 — marking the highest spending potential among all age groups.”

Industry numbers also show a dramatic increase in gold demand in the country. Data published by the China Gold Association (CGA) in July showed that while China saw only slight growth in its gold output during the first half of 2023, gold consumption surged 16.37% over 2022 levels. If that outsized increase is being driven by a new generation of gold bugs, that would be significant.

Millennials invest more than Boomers in gold 

There have also been signs of a generational shift in the West. According to a recent study published by State Street in July, Millennials have leapfrogged Generation X and the Baby Boomers to become far and away the most gold-friendly investor demographic in the developed world.

“Among the investors in this study, on average, Millennials have a higher allocation to gold at 17%, with Boomers and Gen X lagging behind at just 10%,” writes George Milling-Stanley, State Street’s Chief Gold Strategist. “And Millennials reported a greater appreciation for the convenience of investing in gold through exchange-traded funds (ETFs). More Millennials than Boomers or Gen X replied that gold ETFs are the best way to invest, with 69% for Millennials, compared with Boomers at 55% and Gen X at 35%.”

“It’s a lot for this Baby Boomer to digest,” he wrote.

Speaking to Kitco News soon after the study was published, Milling-Stanley said the results came as a shock to Boomers like himself. “For most of my career, my feeling has always been that it was my generation and older people investing in gold, and I was a little concerned because we're dying off,” he said. "So these results took me by surprise. I'm still trying to figure out why millennials jumped over Gen X."

Precious metals across the generations

With such a surprising result, it’s also no surprise that some of the most senior market experts are skeptical of this apparent revolution in the precious metals status quo.

Jeffrey Christian is Managing Director of the CPM Group, one of the world's leading precious metals and commodities research firms. Christian told Kitco News that the previous youth booms that looked ready to rock metals markets tended to fizzle out quite quickly. “We've seen periods of time where Gen Z and Millennials have shown interest in gold and silver as an investment, and it hasn't been persistent,” he said.

Christian said there was a period in the mid-2010s when Boomers seemed to turn their backs on precious metals. “The prices of gold and silver were relatively low, $1,200, $1,300 gold and maybe $13 or $15 silver and Baby Boomers were not interested in it,” he said, “but you saw an increased number of younger people in their 20s and 30s buying gold and silver as investments.”

He said that during this “post-Great Recession/global financial crisis period,” younger people with good earnings and money to invest were looking at the rock-bottom rates from bank accounts and interest-bearing assets and seeing very little value. “And the stock market wasn't perceived as all that good,” he said. “It actually was, but there were negative views about it. So you had a lot of younger people in that period, 2014 to 2016, who were saying, ‘Where am I going to make money with my money? Where will I earn more?’ And you saw a period where they were buying gold and silver.”

Millennial demand has proven fickle

But Christian said this buying spike from younger professionals dissipated shortly afterward, and Millennial investors have moved into other assets.

“Since that time, we've gone through several waves of investment,” he said. “We did start seeing some of those younger people returning as investors, in Europe and North America, again around 2020, 2021. Partly, it was because the prices had begun rising, and partly because they were looking for yields. And if you go back to 2020, 2021, interest rates were still 25 basis points, so you weren't getting yields there. But in 2021, you had a stronger economic recovery coming out of 2020, and people were saying, ‘Where am I going to put my money?’ We saw some younger investors buying into that.”

Christian said that what CPM saw in 2023 is what they refer to as ‘inert interest’ from younger investors. “If you send out notices or surveys and things like that, you'll find many people in their 20s and 30s and 40s now expressing interest in possibly investing in precious metals, but from what we can tell, they’re not significant buyers at this time.”

Banks and brokerages hamper metals investing

Christian said one of the reasons that this interest doesn’t translate into concrete investment is a lack of clear and reliable information on how to invest in the metals themselves. “In theory, they understand the arguments for having some of your wealth in gold and silver, but when it comes to practice, it's not as easy and straightforward to own physical metal,” he said. “Then you start looking for information about precious metals, and the mainstream banks and brokerage houses don't necessarily offer precious metals.”

Christian said mainstream banks and brokerages will sell what they know and try to steer prospective metals investors into mining stocks or precious metals ETFs. This pushes investors to try researching precious metals by themselves on the internet, where they often find incoherent and confusing narratives. “It discourages them,” he said. “It's not a matter of not encouraging; it's active discouragement. People look at what is being written about why you should invest in precious metals, and they say, ‘Oh, this is just not for me.’”

He added that there could be a growing cadre of younger gold bugs, but “the average masks a lot,” and they would be hard to identify within the broader market. Still, he believes the case for young people investing in precious metals is stronger than ever.

“Young people are looking at their lives, they're looking at the long term, and they're looking at short-term economic and political conditions, and they're worried,” he said. “They're looking at their ability to build a comfortable life and a decent nest egg for retirement, and they hear that precious metals make sense. But they hit this roadblock, and what they get is stuff that turns them off.”

Youth boom or pan-generational panic?

Christian also believes the recent reports of a youth buying boom in China may be misleading, as buying is stronger across all age groups, and for all the same reasons: fears of currency depreciation, the collapsing real estate market, and the need to preserve value in a country with some of the strictest capital controls in the world.

“What we've picked up from my Chinese sources is that demand for gold and silver picked up across the demographics,” he said. “Everybody's worried about the state of the place.”

A recent New York Times article delves into the depths of the economic malaise that China is facing and lists some of the creative techniques that Chinese citizens are resorting to in the quest to get their money out of the country, including buying “gold bars small enough to be scattered unobtrusively through carry-on luggage.”

Indeed, China’s apparent burgeoning youth market for gold may largely be a combination of the people with millions in savings buying gold and foreign currencies to circumvent capital fight controls before converting them into conventional investments like real estate in other countries. In contrast, the people with the lowest savings buy the tiny amounts they can afford to preserve what little they have. Smart under the circumstances, but not quite proof of a sustainable generational shift in global metals investment.

Bullion and the blockchain

But that’s not to say the shift isn’t coming; it may take new and unfamiliar forms.

Everett Millman is the Chief Market Analyst at Gainesville Coins. In an interview with Kitco News, he agreed he does not see strong interest in gold and silver from Millennials or Zoomers. “In terms of on the ground, whether we've seen younger generations coming in and buying gold, that hasn't happened,” he said. However, he does see younger investors gravitating toward gold-backed ETFs, as the State Street study suggested.

However, Millman believes that the cryptocurrency ecosystem, often viewed with suspicion and scorn by the gold establishment, may actually be acting as a bridge between Bitcoin and bullion.

“The younger generation's interest in gold is likely to take form through these alternatives,” Millman said. “I think that, somewhat paradoxically, it kind of defies expectations; the gateway for younger folks to get into gold and to become aware of it as an asset largely comes through things like cryptocurrency and Bitcoin.”

“We consistently see this comparison made between the two, ‘Bitcoin is digital gold,’” he said. Millman sees a lot of rhetoric in the cryptocurrency space comparing cryptos to gold and implying that certain tokens have some of the same properties as gold.

Millman said these kinds of narratives are getting through to the crypto crowd. “Anecdotally, I can tell you some of my acquaintances who are more Millennial, in their late 20s or early 30s, tend to be already aware of Bitcoin and cryptocurrency,” he said. “When they hear these comparisons to gold, it’s like a lightbulb goes off where they think, ‘maybe I should look into this. If they're trying to use gold to bolster their credibility, then maybe I should look at gold. What is it about gold that's interesting?’”

In July, Milling-Stanley told Kitco that he sees cryptocurrency as a potential gateway into metals investment. While he believes younger investors are open to new ideas and not afraid of taking risks, some may have learned a valuable lesson about price stability and staying power from the crypto winter.

“Millennials were very enthusiastic about cryptos,” he said. “Having lost $2 trillion out of a market cap of $3 trillion in the space of a couple of weeks last year, Millennials are probably now looking for ways to protect themselves, and are saying, ‘Maybe the new shiny object we should be looking at is an old shiny object.’”

Decentralization, inflation, and property rights

With the crypto market entering another bull phase, younger investors are more likely to be running toward digital currencies these days rather than away from them. But engagement in the crypto ecosystem may be the mechanism that ultimately brings Millennials and Gen Z into the metals space.

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, a San Antonio-based fund manager that offers ETFs targeting several areas in natural resources, including precious metals. He is also the Executive Chairman of HIVE Blockchain, the first publicly traded crypto miner of Bitcoin and Ethereum.

“Gold bugs and Bitcoin maxis, as they like to call themselves, read from the same Old Testament, the same economic book,” Holmes told Kitco News. “It's all about fiat money.”

Holmes said that while inflation and currency debasement remain the chief concern, investors in both gold and bitcoin are also worried about governments finding ways to take away private property. “It goes back to the Magna Carta, private property rights,” he said. “The Bitcoin maximalists are really hung up on that, ‘this is my private property, like my home is my private property, I paid for it.’”

Beyond the government, gold bugs and Bitcoin maxis also share a deep mistrust of big financial institutions and centralized private systems that can manipulate, control, or even steal people’s assets. 

“That is one of the big concerns,” Holmes said. “You've seen a big push by them saying, ‘get your money off the FTXs or any type of exchange because you're at risk. You want to put it in your own cold wallet. It's your property. Don't lend your property.’”

“Gold and Bitcoin, they're both decentralized alternative assets,” Holmes said. “One is tangible, and one is not tangible. That makes one electronically portable, and that's the difference. To me, they have a lot of similarities, though gold has been around a lot longer.”

As the largest intergenerational wealth transfer in history unfolds, and the assets of the Baby Boomers are passed down to their children, the Millennials, that wealth will find itself in the hands of people who are digital-first, including in their approach to investment. “They're much faster at using the digital world,” Holmes said. “They were the first to really adopt Facebook, then came the Baby Boomers.”

He said that the Millennials’ adoption of Reddit helped build up the alternative investment communities that have become so strong on that platform as well. “You can still see the millennials had a significant use of social media during COVID,” he said.

Gaming and digital currencies 

There is also another technological component that has paved the way for crypto adoption among younger investors: video games.

Holmes said that Bitcoin’s ease of adoption by the millennials and Generation X, Y, and Z was aided by the innovative rewards systems and in-game currencies developed by the video game industry. “In the gaming industry, kids are rewarded, not with paper money like we were playing Monopoly,” he said. “They're rewarded with digital money to get upgrades.”

Holmes believes this combination of decentralized social media, on the one hand, and digital worlds with their own digital currencies, on the other, have made the Millennials and the generations that follow them fundamentally different as investors.

“There's two types of gold bugs I've found,” Holmes said. “The ones that protest most against the government actually own little gold; they just don't like the government. That's my experience of living in Texas for 35 years. They're really not invested.”

The second type are the ones who put their money where their mouth is. “Those that want to protect their private property against money printing and imbalance between monetary and fiscal policies, they're the ones that buy Bitcoin and gold,” he said. “And it's not so much that they're anti-government. They just know that the policies will be greatly imbalanced, and the greater the imbalance, the greater the significance of gold in your portfolio. And now, with Bitcoin, that person is more sophisticated.”

ETFs will do for Bitcoin what they did for gold

Holmes believes that the U.S. spot Bitcoin ETFs will have a seismic impact on the sector and the broader market, much like gold ETFs did 20 years ago.

Holmes said that back when he bought U. S. Global, bullion-backed ETFs like SPDR GLD did not yet exist, and the gold investment community was made up of a very particular subset of the broader market. 

“We did these surveys, and most of our gold investors had graduate degrees,” he said. “A lot of them had international politics or economics degrees, or they were military people who traveled around the world. They had this perspective, this sort of global view regarding paper money and gold: Governments will make mistakes, and gold is a great protection.”

Holmes said that the emergence of exchange-traded funds brought ordinary investors into precious metals, contributing to the sector's massive growth. “The GLD all of a sudden woke that up, and gold became more mainstream,” he said. “I think that's what can happen to the [spot] Bitcoin ETFs. It changes the game because it now becomes retail.”

Holmes said that what people need to realize is that the decentralized world of the gold bugs and the Bitcoin ecosystem of the Millennials and the younger generations is actually much larger than that of the Baby Boomers now. “They show up at these conferences,” he said. “They get 30,000 people spending a thousand dollars a ticket in Miami.”

“They're outside of [the mainstream] system, but they pay taxes.”

ETF growth will impact Bitcoin’s price  

He expects to see the Bitcoin ETFs have a massive impact on BTC price over time, just as the gold ETFs did. “Gold was what, $400 when they came out with GLD, and it continues to climb,” Holmes said. “It will go through these flows, but net, it's grown.”

“How many gold bullion ETFs are there now? If you add them up, it's quite remarkable.”

Holmes said he believes Bitcoin will follow the same trajectory now that the spot ETFs have been launched in the United States, owing to some simple math. “It will be a game changer,” he said. “If you look at the percentage of people that invest in mutual funds and ETFs and stocks in America, it's 60%.”

Holmes said that while the maxis and other crypto enthusiasts are already holding Bitcoin, the most significant impact of the ETFs will be to grow the pool of investors across all demographics because of the regulatory oversight and institutional buy-in that exchange-traded funds receive.

“I think the operative word is safety,” he said. “Maslow's Hierarchy of Needs, feeling safe. Everything's about safety. When it becomes an ETF, then the general investment public will feel safer. These exchanges that are allowed to be brokers, the commingling of assets, I don't know how they're ever allowed to do that. Stock exchanges cannot own a brokerage firm. The separation of assets and safeguards, and protections is what has to come into crypto. And it's coming through the Fidelities of the world.”

Young investors follow tech into metals and miners

Holmes said that based on the discussions he’s had with fund managers, the clients for gold funds like his GOAU ETF are still drawn from the older demographic. “It is predominantly family offices, older, wealthier people. They're the most dominant players,” he said. “I've tried to reach out and explain to the millennials and generations X, Y, and Z that they can start with $1,000 at Robin Hood to buy it. But most are boomers, not young people, so I've not seen that shift of young people going into gold stocks.”

What Holmes has seen, and what he expects to see more and more in the coming years, is the younger demographics following their digital passions and technological interests in gold, battery metals, and mining stocks. “I have seen young people going into lithium because they bought a Tesla,” he said. “They went, and they bought Global X Lithium & Battery Tech ETF. So their discovery of lithium, through Tesla, brought those young people into the mining sector, back-door through lithium. “

“Now, I think if gold starts to take off, you're going to get this big, broader audience of people that have been involved in mining through lithium,” Holmes said. “That's my experience. I think it's going to come through the lithium world.”