When investors are worried about rising raw costs and inflation, CNBC’s Jim Cramer typically suggests they buy a popular hedge against those economic pressures: gold.
But lately, the price of gold has been in a downtrend, sinking roughly 11 percent since its April peak despite concerns about the effects of new trade policies on the U.S. economy.
So, to make sense of the move, the “Mad Money” host turned to technician Carley Garner, the co-founder of DeCarley Trading and author of “Higher Probability Commodity Trading.”
And to Garner, the situation isn’t as dire as it seems.
“Garner believes that precious metals could be ready to snap back,” Cramer said on Tuesday.
“Why? Because the price of gold still hasn’t really reacted to the current trade war, or the exploding budget deficit — which a lot of you care about tremendously, of course — or even the recent uptick in inflation,” he continued. “With inflation on the rise and the government borrowing insanely high, you’d expect precious metals to become more popular on the Wall Street fashion show.”
Garner started by looking at a chart of seasonal patterns in the gold market from the Moore Research Center, Inc.
According to Moore, taking a long position in December gold futures on July 24 and holding it through Sept. 6 has been profitable in 13 of the last 15 years — and the gains tend to be large, Cramer said.
“In short, I think we’ve just entered the single best time of year to bet on gold,” he explained. “All else being equal, it’s better to have these seasonal patterns on your side than to fight against them.”
Better yet — at least from Garner’s perspective — Wall Street has turned extremely bearish on the fate of gold. But as a contrarian, she has been able to spot great opportunities by staying bullish when everyone else turns negative.
And right now, things look downright pessimistic in the gold market to Garner, who pointed to the weekly chart of gold futures complete with the Commodity Futures Trading Commission’s Commitments of Traders Report.
The data here show how large speculators, small speculators and commercial hedgers are investing around gold. At the moment, the large speculators — Garner’s main focus — are slashing their positions in gold futures to the lowest they’ve been in years.
“This chart shows you that the big-money speculators are pretty darned negative,” Cramer said. “Crucially, the last time the numbers got this low was December of 2015,” right before gold surged higher.
“So this pervasive negativity is one reason why Garner thinks that a bottom in the precious metal might be imminent,” he continued.
Moreover, the price of gold is approaching its $1,200 floor. If it doesn’t hold, which Garner deems unlikely, it could fall to $1,125. But if the floor does hold, the precious metal could head to $1,350.
“Let me give you the bottom line here: for those of you who are genuinely worried about inflation and trade policy and rising rates, and let’s throw in the budget deficit, you don’t need to dump your stocks,” Cramer said. “Instead, though, how about buying some gold as an insurance against economic chaos, perhaps via the GLD, the ETF that owns gold so you don’t have to.”
“The charts, as interpreted by Carley Garner, my favorite commodities analyst when it comes to charting, suggest the precious metal could be ready to run here,” the “Mad Money” host said. “No one’s thinking this, and I wouldn’t be surprised if she turns out to be dead right.”
Gold prices bounced on Tuesday, erasing their earlier losses on a report that suggested China and the United States could restart trade talks. U.S. August gold futures closed up $2.40 at $1,223.70.
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