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Is this 'bizarre' time for gold finally over? Gold price is about to rally and now is 'the perfect time' to buy, says Jim Cramer
(Kitco News) CNBC's Jim Cramer just updated his gold outlook, saying that now is the perfect time to get into the gold trade after what he described as a "bizarre period" for precious metals.
Cramer shared the disappointment experienced by many gold bugs after gold failed to bring much-anticipated returns this year after peaking at new record highs back in March.
"It has been a bizarre period for precious metals. I am a big fan of holding some gold as an insurance policy against inflation or economic chaos. Historically, that has been very effective. But in recent years, it has blown up in our faces," Cramer said Wednesday.
At first, Cramer blamed competition from the crypto space as holding gold back. But when crypto markets collapsed this year, the situation has not changed.
"Last year, we had rampant inflation, and gold didn't do much for you. I thought the culprit was crypto. That people who normally hide their money in gold were instead buying cryptocurrencies," he said. "This year, the whole crypto ecosystem has collapsed. Meaning that gold doesn't have much competition. And we've gotten insanely high inflation readings, the worst in decades. Yet gold is basically flat for the year."
But as the public is giving up on gold, it might be the perfect time to get into the trade, Cramer said, citing chart analysis done by legendary market technician Larry Williams, famous for calling tops and bottoms in trading patterns.
"Williams finds that when small speculators get too bullish, it is almost always a sign that we are near a top. But when they get too bearish, it is almost always a sign that we got a bottom on our hands," Cramer explained. "According to the latest Commitment of Traders report, small speculators are net long 92,690 contracts for gold, which is their smallest long position since May of 2019, right before we got a major boost in gold. In the last nine years, whenever their net long position has been this low, the actual metal has rallied, and the best selling points all came when they had large long positions."
Back in March, when gold peaked above $2,000 an ounce, these small speculators were long 200,790 contracts, which was their largest net long portions in four years, Cramer pointed out.
Cramer added that the price of oil is another great indicator of future gold price moves, noting that the precious metal tends to respond to changes in oil prices much more than any other inflation indicator.
"Price of oil pushed forward by eight weeks has been very powerful for predicting the price of gold in the past. Williams says that based on the price of oil in the next eight weeks, now is the time to buy gold. His forecast says it should be ready to rally here," Cramer said. "I know it has been tough to bet on gold this year. But right now, the charts might finally be on your side."
Cramer's own view is not to bet against Williams when it comes to spotting a bottom on gold. "Charts suggest that gold could be ready to rally, and it might be the perfect time to do some buying," he reiterated.
At the time of writing, December gold futures were trading at $1,804.40, up $28 on the day. Year-to-date, gold is down 1.45%. Following the March peak, gold has struggled to make gains due to aggressive Federal Reserve rate hikes and a strong U.S. dollar.
