On Wednesday, Jim Cramer said that the time was right for investors to purchase gold, as the metal is predicted to rally.
The 67-year-old made the advice during his show Mad Money on CNBC. He based it on chart analysis by Larry Williams, the stock and commodity trader. Cramer explained that the analysis suggests that there is widespread abandonment of gold by the general public, thus making it the perfect time to buy.
Stronger Treasury yields and the U.S. dollar drove gold futures down on the same day. During times of economic and geopolitical instability, the metal tends to attract investors due to its reputation as a safe and stable investment.
Williams, the 79-year-old trader and author explained that when small speculators are optimistic about gold (or bullish in financial market jargon), it is a sign that gold is about to peak. In contrast, when the same speculators are pessimistic (bearish), gold is usually nearing the bottom.
Cramer combined the trader’s analysis with data from the Commodity Futures Trading Commission (CFTC)’s Commitments of Traders, which keeps track of the activities of small speculators, large speculators, and commercial hedgers. He also examined the weekly data on gold since 2014.
The bottom of the graph's Commitments of Traders data shows that small investors have their smallest long position since May 2019, just before a significant gold rise. It's also important to note that during gold's most recent top in March, small investors had their largest net long position in four years.
This does not necessarily mean that it is best to do the opposite of what small investors are doing. However, the Mad Money host believes that the report showed signs that gold could gain again soon.
Inflation is on the rise, rising to 9.1 percent annual rate, its highest since November 1981. The Federal Reserve’s recent decision to hike interest rates in order to curb inflation has driven the markets to be concerned about a potential recession.
While the Covid-19 pandemic is still going on, there are growing concerns about a possible second pandemic. On Monday, California became the third U.S. state to declare a state of emergency over the monkeypox outbreak, after Illinois earlier in the day and New York in last Friday.
The war in Ukraine shows no signs of ending. Meanwhile, in response to the U.S. House of Representatives Speaker Nancy Pelosi’s visit to Taiwan, Beijing has started carrying out military drills. A China invasion of Taiwan would affect pivotal sectors of the global economy, including the global chip market.
Cramer also shared his concerns about inflation. Specifically, he is worried about the spending bill being pushed by Congress, the Inflation Reduction Act of 2022. He hopes that the stimulus bill won’t pass so that there is “nothing to worry about”.
The host is also concerned about the Federal Reserve leaders’ strategy to rein in inflation. He pointed out the falling prices of several commodities, such as gas prices, lumber, and aluminum. Cramer hopes the Fed will notice these lowered prices and stop its aggressive rate hikes.