What Gallups Gold Poll Says About U.S. Confidence

(October 19, 2011 - Gallup Poll)

Pollsters at Gallup reckon that one in every three Americans now thinks gold is the best long-term investment, which kind of makes you wonder where the other two U.S. citizens have been investing since the start of last decade.

“Which of the following do you think is the best long-term investment?” asked Gallup in its telephone survey of 1008 adults. You only need eyes to see.

So besides gold, only higher-risk corporate debt has managed to deliver a strongly positive real return. But as our chart shows, it’s been way off the pace.

Trouble is, for market-timers trying to see the light in Gallup’s findings, that key phrase “long-term” wasn’t defined in the survey. Is that next year, next decade or not until you are dead or retired? Nor was the other key word – “best” – given much meaning either. Might it mean simply best return, or best return with lower volatility, or simply “best investment” in terms of not blowing up when some other fool defaults on his debt?

Little matter, perhaps. Because either way, the results sure do jar for longer-term gold investors. We’re more used to being laughed at by friends, family, financial advisers and daily papers alike. Standing aside from the crowd was how this bull market in gold got started. And becoming the No.1 popular pick rarely bodes well for an asset’s future performance.

If everyone’s in, who will be left to keep bidding up prices? Well, let’s take a look, using the best available survey of US family savings – the Federal Reserve’s triennial survey of consumer finances (SCF) – last run in 2009, and released in spring 2011.

Unlike what people think (or say they think), actual investment takes time and money. And according to the Fed’s most recent survey, Joe Public remained a long way from over-invested in gold in 2009. Despite the Gallup findings, there’s no reason to think that’s changed too dramatically since.

The Federal Reserve’s triennial survey didn’t seem to include any questions on gold. So quite which asset-class category gold bullion might come under we can’t guess. Case by case for respondents, it would seem to depend on whether they saw gold as a financial or non-financial lump of metal – highly debatable when real estate comes under “non-financial”, while all of the Fed’s “financial” category is either securitized, packaged or actively managed products provided by the financial services industry.