Jeffrey Christian, managing partner at CPM Group, says gold prices will likely stabilize at current levels.BEAWIHARTA/Reuters
Betting against popular investment ideas is not usually a bad strategy. When an asset is broadly embraced by investors, chances are it has already enjoyed a big run-up and is now poised to fall. The problem today: What exactly is everyone enamoured with?
Gallup, the polling firm, tracks these things regularly, and as Barry Ritholtz at The Big Picture pointed out on Tuesday, the results can be startling when looked at in the rear-view mirror.
A 2011 poll asked the American public what they believed was the best long-term investment, an amazing 34 per cent of respondents answered gold – handily beating real estate, stocks, savings accounts and bonds. What's really interesting here is that, at the time that the poll was conducted in August 2011, gold traded at about $1,760 (U.S.) an ounce and was on its way to a peak of $1,900 an ounce within a month. It is now trading at just $1,274 an ounce after shedding $400 this year alone, illustrating that investor enthusiasm and actual returns can move in opposite directions.
Dennis Jacobe, chief economist at Gallup said as much in his commentary on the poll: "That one in three Americans see gold as the best long-term investment may indicate a bubble in the value of this precious metal."
On the other hand, the same poll showed that just 17 per cent of respondents saw stocks or mutual funds as the best long-term investment. Since then, the S&P 500 has rallied more than 40 per cent.
Perhaps many of the respondents weren't engaged investors. But another Gallup poll – specifically, the quarterly Wells Fargo/Gallup Investor and Retirement Optimism Index – released on Monday, showed that even many folks with $10,000 or more in investable assets were apparently not exposed much to the stock market.
The poll found that a majority (54 per cent) of respondents had benefited "a little" or "not at all" from the rising stock market. The poll was conducted in May, when the S&P 500 was close to a record high.
Now, the question is whether investors are becoming enamoured with stocks only after their impressive run-up, giving contrarian investors a reason to stay clear. Unfortunately, the latest Gallup poll on the best long-term investments doesn't provide a clear favourite.
The poll, released in April, shows a tight cluster among various assets. Real estate is the now seen as the best long-term investment, with 25 per cent favouring it. Gold has fallen to 24 per cent, while stocks have risen to 22 per cent. (Saving accounts trail at 16 per cent and bonds are at 9 per cent, not much changed over the past two years.)
In other words, it's a bit of a muddle in terms of what to view skeptically. Mr. Jacobe believes that investment preferences could continue to shift in the months ahead – meaning that the view of gold could fall more, while real estate and stocks could rise. That means it could be too early to bet against stocks or real estate, but gold is fair game.
David Berman