Jim Cramer on Gold

Jim Cramer, host of “Mad Money,” took sometime on Monday night’s show to explain the recession, the role of the Eurozone in the U.S. economy and how gold comes into it all. His comments came after Europe’s sour outlook drove share prices down on Monday, as well as commodity prices. Fund managers were just as bearish. In the third quarter, fund managers Barry Rosenstein, of Jana Partners, and John Paulson, of Paulson & Co, cut their stakes in gold.

Jim Cramer

Jim Cramer Bucks the Trend, Bullish on Gold

Cramer, however, was not swayed. “The vicious decline in gold is signaling the collapse of the current financial order, an order that’s based on printing money to cover up problems,” said Cramer. “Almost everything will be worth less, and you can see the value of property declining immensely in Europe. In that scenario, everybody’s saying, ‘No inflation? You’ve got to sell your gold.’” Cramer says otherwise. “In other words, right now gold is saying it cannot be used as a safe haven in a deflationary environment, even as gold has always held its value in times of political and economic turmoil,” explained Cramer. “That’s why I think gold’s current direction will turn out to be wrong.”

Cramer’s 3 Reasons Why Gold will Go up

Cramer “noted how the market viewed the threat of deflation as a bigger cause for concern than the potential of a worthless euro and the civil unrest that could result.” He went on to give three reasons why he thinks gold prices are going to go up after a brief period of volatility:

Gold demand is still strong. Central banks around the world want to own the commodity, so do emerging countries and their citizens.

Printing more currency drives gold up. A run on European banks will likely end up with the printing of more currency. This may head off a recession, but it would also destroy the euro, at least for a little while.

Supply is limited. Gold reserves are largely tapped out. The cost of mining is up and exploration is risky. It is centered on unstable regions and are “wildly expensive, if they work out at all.”

Cramer’s Recommendations for Investing in Gold

Cramer recommended investors look toward actual gold bullion, gold coins from the U.S. mint or SPDR Gold Trusts ETF (GLD), which Cramer said “is probably the easiest way to go for the gold.” Cramer has recommended GLD 3 times in the last month and 15 times in the last 3 months. In the third quarter, Leon Cooperman’s Omega Advisors increased its position in GLD by 15.46%, bringing its total stake in the company to 721,500 shares – a value of $114 million or 3.38% of its portfolio. Activist investor David Einhorn is taking a slightly different approach. Einhorn is just as bullish on gold, but he thinks the biggest gains will come from gold mining stocks, as opposed to gold commodities.

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