Even Legendary Stock Bull Jim Cramer Recommends Gold These Days

Even legendary stock bull Jim Cramer recommends gold these days. Creative commons image via Wikimedia.

As if investors needed any more reminding about economic conditions, CNBC’s Jim Cramer recently recommended Americans diversify with gold in one of the network’s financial features. Cramer, whose show mostly covers the stock market, said he likes gold as one of only three assets in a recession. The other two?

Well, honestly they’re a little less accessible to the average American… “Masterwork paintings” and, well, there’s just no other way to say this, “incredible mansions.”

The almost ridiculous nature of the other two items on the list tells us a few things. It seems that Cramer, like many others, views gold as the only asset one can truly fall back on during times of crisis. Consider for a moment the liquidity of “masterwork paintings,” or the wisdom of the time-honored phrase “One man’s trash is another man’s art.” What defines a painting as a “masterwork,” exactly?

Or how often does an “incredible mansion” go up for sale? What qualifies it as “incredible” rather than, say, an everyday “mansion”?

Finally, just how easy are these tangible assets to buy and sell?

Of Cramer’s three recommended assets, only physical gold is fungible, liquid and (most importantly) accessible to everyone. It’s also a lot easier to recognize than “masterwork” or “incredible” investments.

What’s the best way to own gold? Cramer doesn’t recommend an ETF or mining shares:

Physical gold is the cheapest way to do it.

This recommendation didn’t come a moment too soon, either… What could have been considered a “consumer crisis” in the form of four-decade-record inflation has now come for stock market investors – in a big and brutal way. As of last Monday, the S&P 500 officially entered a bear market, although it was only a formality given its 20% year-to-date losses.

So long as the stock market is performing well, it’s as if there is no trouble. We can, for example, ignore an 8.6% inflation rate that is rising past 40-year highs despite Federal Reserve policy tightening. But when trouble hits stocks, it’s panic time.

Cramer’s wording is telling enough, as he does seem to acknowledge that we are either in, or headed towards, a recession. For as many analysts, experts and banks that we can find cautioning against an extreme risk of recession, there are almost as many going the other way. It won’t take long to find a forecast that dismisses the notion of a recession entirely or otherwise says a crisis will be short-lived.

It begets the question: what exactly is needed for someone to ring the recession bells? Businesses were hammered by lockdowns and only kept up by monetary stimulus that has now dissipated. The same holds true for large, publicly-traded companies. The stimulus-ending crash is actually worsening what would have been a “natural” correction of the longest bull market in stock history.

Then we get to inflation. The Federal Reserve’s only stated way of bringing inflation back to 2% territory would be to cartoonishly increase the nominal interest rate, as with any other central bank. Inflation is, after all, a global theme. It just so happens that the U.S. government has a $30 trillion debt, on which it has to pay interest. The larger the interest rates, the greater the debt payments. The same holds true for corporate and private debt.

We are three years into a crisis, but we are reaching the territory where Wall Street, central banks, private banks and the like can no longer look away. Their preferred method of dealing with financial crises, or the only method ever utilized, was bailouts. That’s how 2008 was swept under the rug.

Yet the bailout already happened early on into this crisis, with $4.6 trillion being “produced” to pretend like nothing’s happening. The bailout worked in 2008, but it has clearly failed this time around. We again find ourselves in uncharted territory.

In the 1970s, interest rates were 13% (compared to today’s 1.5%). That’s why the hiking approach somewhat worked. In 2008, inflation was near the 2% target, rather than above the 40-year high of 8.6%. That’s why the money-printing approach somewhat worked.

It shouldn’t be surprising to hear that Cramer likes the only asset proven to hold its ground in any situation, along with large houses full of nice paintings.

Gold Stands to Soar in Midst of “The Great Lockdown”

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Global economic growth is projected to fall below -3% this year, and it’s exactly why Frank Holmes argues that more people must own gold. See his argument here.

As Forbes contributor Frank Holmes points out, “The Great Lockdown” isn’t just a colloquialism used to describe the current state of affairs. It is a term that the International Monetary Fund (IMF) itself has come up with to describe the economic picture, along with such dismal outlooks as predicting that the world is headed towards the worst recession since the Great Depression. And, with global economic growth projected to fall below negative 3% this year, they have no shortage of data to back up their forecast.

To Holmes, this is a wake-up call that signals it’s time for every individual to focus on preserving their savings. As evidenced by the action in the gold market so far, plenty of people around the world have indeed recognized this ominous signal. Gold has climbed roughly 13% so far this year and quickly made precious metals one of the best-performing asset classes. A look into this month’s top searches on search engine also shows that gold has piqued more interest than it has at any point over the past decade, including when the metal reached its all-time high of $1,900 in 2011.

With its exceptional performance thus far, many experts and analysts have been calling for prices that even the bullish forecasters wouldn’t have dreamt of a year or two ago. Bloomberg commodity strategist Mike McGlone recently noted that gold seems to be aiming for a reversion of its long-term mean versus the S&P 500 Index, a move driven largely due to the unprecedented amount of monetary stimulus currently taking place. If true, gold would undoubtedly move on to new highs, with Holmes highlighting a range of $2,800 to $3,000 based on the S&P 500’s current mean.

Perhaps the most notable part of this analysis, however, is that a mean reversion of this kind is far from a hypothetical scenario. In May 1990, gold and the S&P 500 were both trading inside a range of 330 to 360. For a more recent example, March 2013 also saw gold and the S&P 500 trade within a 1,500 to 1,600 range, a roughly one-to-one ratio. This makes the scenario of gold climbing to $2,800 and above in the short-term a very realistic possibility backed by historical precedent.

Yet despite the clear flock to gold and extremely bullish indicators such as this, Holmes thinks far too many people remain severely underweight on the metal. A study done by the World Gold Council (WGC) last year showed that commodity indices have a minimal gold weighting, meaning that investors whose exposure through gold comes by way of funds only receive a meager amount of benefits from an outperforming asset.

Instead, Holmes recommends a much more direct approach to owning the metal, one that involves at least a 10% allocation within a portfolio with a sizeable emphasis on physical gold. While some people might feel as if they already missed their entry point due to the strength of gold’s gains so far, Holmes notes that both price forecasts and economic predictions suggest that this is far from the case.