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The AI trade did more than propel chip stocks higher this year. It appears to have siphoned capital directly from some of the market’s most familiar monetary hedges.
Since March, US semiconductor exchange-traded funds have drawn over $22 billion in cumulative inflows, while gold and Bitcoin funds have shed around $17.5 billion.
The correlation between these moves suggests less a pair of separate investment narratives than a single, powerful rotation. It is one story about a single pool of marginal risk capital rotating out of monetary hedges and into AI momentum.
The Smoking Gun
The iShares Semiconductor ETF SOXX peaked at nearly 112.8% year-to-date on June 22. Meanwhile, Bitcoin and gold experienced 33% and 8.7% drawdowns, respectively. For fast-money investors, that divergence created a straightforward equation ― semiconductor exposure worked, monetary hedges didn’t.
Rotation accelerated from mid-May when gold and Bitcoin outflows roughly tripled while semiconductor inflows doubled. That timing points to performance chasing, when outflows funded a concentrated bet on the AI supply chain.
Still, the $40 billion round trip doesn’t make for a clean swap between the assets. Fund flows are a positioning indicator, not a transaction ledger. Yet, when one line’s withdrawals closely resemble another’s purchases for four months running – the common source of capital is difficult to ignore.
However, that trade is now under pressure.
The Philadelphia Semiconductor Index fell almost 10% last week and is down more than 20% from its June high, meeting the conventional definition of a bear market. The retreat has spread across major chip and memory names, with the broader momentum complex undergoing a sharp reversal despite upbeat results from Taiwan Semiconductor Manufacturing TSM and ASML ASML.
“We’re dealing with one of the biggest momentum sell-offs on record,” Christian Mueller-Glissmann, head of asset allocation research at Goldman Sachs, told the Financial Times. “It’s been three weeks of washout.”
Chasing Momentum
The June unwind exposes the fragile foundation beneath the semiconductor rally. Momentum strategies can get crowded when prices are rising, but can lose appeal even faster when prices fall.
According to Financial Times, a Bloomberg index tracking momentum strategies has dropped 13% since the broader technology rally peaked in June.
SOXX vs. GLD vs. IBIT, Source: TradingView
For gold and Bitcoin, the reversal could matter mechanically as well as psychologically. If the semiconductor rally was funded in part by liquidation of ETF positions in alternative stores of value, a sustained decline in chip shares may push some capital back toward the assets investors previously sold.
A month of flat trading in SPDR Gold Shares ETF GLD and iShares Bitcoin Trust IBIT indicates a potential setup – but reversal remains tentative, and crowded trades can remain crowded longer than skeptics expect.
Image: Shutterstock
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This article The Semiconductor Trade Yanked $22 Billion From Gold and Bitcoin — Now The Tide Is Turning originally appeared on Benzinga.com.
