Americans Turn to Gold Over Stocks

Stocks are supposed to be the ideal long-term investment because the history of the market is that it rises relentlessly, with a few bumps along the way. But Americans have turned their backs on equities in favor of gold. That is probably a good decision.

According to a new Gallup poll, “Thirty-four percent of Americans say gold is the best long-term investment, more than say so about four other types of investments. Real estate (19%) and stocks (17%) are distant second choices.”

The history of real estate prices over the past three years and forecasts for the next several support skepticism about its viability as a way to make money. Data from S&P-Case Shiller show that prices have fallen as much as 60% in some markets. Foreclosures were above three million last year, and 2011 is expected to match that figure, according to RealtyTrac. Robert Shiller believes home prices in some areas may drop another 10% to 15%. The “shadow” inventory of foreclosed properties held by banks but which have not been put on the market may number as high as two million. The inventory of homes in the hardest hit regions will take 30 to 40 months to clear. Real estate prices may not recover to 2006 levels for over a decade. They may not get back to those levels at all in regions where home prices were most inflated by the bubble.

Stocks are up sharply over the long term. The S&P 500 traded at 190 in 1985. It is currently at nearly 1,200. The index took a fall to 685 in March 2009 from 1,425 in May 2008. It moved back to 1,365 in April. The argument that equities pay off over time is still intact, but the gyrations of the market have caused many people to lose sight of that.

Gold has been a remarkably good investment. It is expensive at $1,790 an ounce, down from $1,917 a few weeks ago. It is also wildly volatile. The argument investors might make is that the trend in its price is clearly higher over the past five years. The precious metal traded for $600 in 2006. It would have to make a large correction and stay down for a long period to support an argument that it is a poor investment. Unfortunately, the more people who desert equities for gold, the more likely it is to push gold higher. The use of gold in industrial products and jewelry are also likely to support or drive up gold prices.

Stocks, for many years the refuge of the investor searching long-term return, may have lost their luster.

Methodology: Results for this Gallup poll are based on telephone interviews conducted Aug. 11-14, 2011, with a random sample of 1,008 adults, aged 18 and older, living in the continental U.S. selected using random digit dial sampling.

Douglas A. McIntyre