ETFs are blowing up gold, silver, and Bitcoin price bubbles

Gold plunged 21 per cent in two frantic trading sessions on Friday and Monday, but remains twice as high as it was 18 months ago.

Silver traded sideways for years between April 2021 and April 2025. Then, suddenly, it quadrupled in value from $US30/oz to $US121/oz before crashing 30 per cent since in a day last Friday. Before that silver was largely considered a dull, sideshow asset class.

For investors this kind of price action is the signature of a speculative mania and the lessons for those wanting to make money in a fast-changing financial world are many.

ETFs

First, it is worth noting the wild volatility in gold and silver prices is pushing their prices around the same way as it does for the world’s leading speculative vehicle in Bitcoin.

The link between all three is the soaring popularity of exchange traded funds [ETFs]. They now let retail investors buy or sell these assets at the click of a button.

Retail investors also tend to be price followers, in that they’ll buy whatever is going up in price regardless of its underlying valuation.

That’s why Bitcoin, gold, and silver are perfect asset classes for retail punters to chase to runaway highs. After all, gold, silver, and Bitcoin have limited intrinsic value, unlike stocks that pay dividends from profits, or properties that pay cashflows from rental income.

If an investment property only earns a rental income of $52,000 a year, nobody is going to bid it to $3 million at an auction.

An airport stock that pays a dividend of $1 per year is likely to trade at around $20 on a yield of 5 per cent a little above a cash rate of 4.1 per cent to compensate the shareholder for the risk that the airport may see a downturn in passenger volume.

No irrational mania for the stock is ever going to see it quadruple to $80 in five months, before crashing to $40 in a couple of days.

However, Bitcoin and now gold or silver are perfect asset price bubble candidates, as they pay no income and are only ever worth as much as a growing crowd of retail speculators will pay for them.

The cocktail of social media, low interest rates, money printing and cheap brokerage apps has meant there’s a lot of money to be made or lost in these types of asset classes since the pandemic.

Gold versus Bitcoin

The advantage gold and silver have for ETF investors over Bitcoin is that the metals physically exist. In 2025, ordinary Sydneysiders queued the streets of its CBD to buy the precious metal in a collective belief its price will appreciate.

If an investor buys a gold ETF they get exposure to the price without having to physically store the gold at home. An oil ETF is similar as virtually no one would want to take delivery of a barrel of oil in the spare room. Futures markets in commodities also first developed so farmers could lock in prices to sell their physical products in the future.

However, Bitcoin is essentially a limited supply of nothing. You cannot avoid physical exposure to nothing, or hedge the financial risk of having to physically deliver it in the future.

This makes the record-shattering popularity of Bitcoin ETFs surprising. Anyone can buy it on an exchange, or online without the need for an ETF.

But investors in the Bitcoin ETFs are paying management fees normally between 0.25 per cent to 1 per cent. After its launch in January 2024, Blackrock’s Bitcoin IBIT ETF reached nearly $US100 billion ($144 billion) in funds from investors under management.

Bloomberg recently cited it as the investment giant’s most profitable fund in history and its management fees of 0.25 per cent per annum would’ve been earning it $US250 million a year on a $US100 billion FUM.

In just over two years since the fund’s launch Blackrock could’ve earned towards $US500 million in fees from investors by offering them exposure to a limited supply of nothing. No wonder the ETF industry is ballooning.

Its financial success allows it to advertise more funds to investors, who then fuel the asset price bubbles as they tend to buy whatever funds they see as rising in value. The volatility is analogous to a theatre that gets more crowded as a show gets more popular, but the downside risk gets higher, if the fire alarm goes off, and everyone tries to head for the exits at once.

While the basic human instinct to own whatever is going up can be traced back 300 years to the South Sea Stock Bubble of 1720. As such gold, silver, and Bitcoin investors can expect more volatility and irrational price action as ETFs win more funds from investors.