Gold investors are feeling hard done by and for good reason.
In the run-up to the U.S. election, many forecasters, from Société Générale to ABN Amro to Bespoke Investments, assured their followers that precious metals would soar in value in the unlikely event that Donald Trump were to win. The prognosticators reasoned that people spooked by Trumponomics would dump stocks and take refuge in gold.
So much for forecasters. Only hours after the election, major investors performed an about-face on the merits of Mr. Trump's economic policies and decided to embrace stocks while dumping gold – just the opposite of what had been predicted.
The precious metal's price has plunged since election day, falling from $1,275 (U.S.) an ounce to $1,181. But does that mean a buying opportunity is opening up?
The answer hinges on your opinion of Trumponomics. If you believe the president-elect's plans to cut taxes and spend on infrastructure will lead to a Reagan-style bull market on Wall Street, then gold deserves to be shunned. Stocks offer much better value.
But if you're less confident of what lies ahead, gold merits a closer look. Think of it as a bet on pessimism.
Devoting a small part of your portfolio to the metal offers insurance if an economic shock sends people scurrying for safety.
What could that shock be? A severe slowdown in China's opaque economy would qualify. So might the outcome of the French presidential election next May.
If Marine Le Pen, leader of the far-right National Front, were to win that race, the euro zone would be shaken by the possibility of France following Britain out of the European Union. Investors would bolt from the euro and many would probably wind up in gold.
Another reason for considering gold rests on the possibility that Mr. Trump's economic agenda will fizzle, taking the U.S. dollar down with it.
Gold tends to move in the opposite direction of the greenback because the metal is denominated in U.S. dollars, so a stronger buck makes bullion more expensive for international buyers. When the dollar strengthens – as it has, quite spectacularly since the U.S. election – gold nosedives.
The big rise in the currency in recent days reflects investors' confidence that Trumponomics will goose U.S. economic growth. Yet how much the president-elect can add to the current pace of expansion is still in doubt.
By many measures, the U.S. is already verging on full employment. Mr. Trump's plans for freer spending may run into opposition from some of his fellow Republicans. And even if his proposal to spend $1-trillion on infrastructure passes muster with Congress, the money will be doled out over a decade. An annual expenditure of around $100-billion a year is unlikely to have a big impact on a $19-trillion U.S. economy.
If Trumponomics fails to ignite growth, the U.S. dollar will fall back. All else being equal, gold should benefit.
However, it's important to consider timing before buying the metal. The recent sell-off appears to have purged much of the frothiness in gold's price, but it's not yet clear that bullion is a tempting buy.
Gold is likely to trade around $1,250 an ounce in 2017, according to a report this week from Moody's Investors Services. The metal's future course will be volatile, Moody's warns, but the credit rater sees it fluctuating within a range of $1,100 to $1,300 over the next couple of years. If Moody's is right, gold represents decent value right now, but would have to decline further before it becomes a compelling investment.
Charlie Morris, a fund manager at Newscape Capital in London, offers a similar viewpoint. He wrote recently that his valuation model indicates the metal is "becalmed," by which he means it is neither in a bear market nor in a bull market.
"For the first time really since the credit crisis, the gold price is at fair value," says Mr. Morris, who publishes the Atlas Pulse newsletter devoted to gold and bitcoin investments.
One of the more temperate commenters on gold, he says it makes no sense to own the metal most of the time, because stocks offer better returns. Mr. Morris says gold would have to start significantly beating the S&P 500 to move into a bull market of its own. That suggests that investors may want to wait for signs of weakness in the stock market before moving more firmly into gold.