The Federal Reserve is flooding the world with dollars as a way to keep American exports competitive, Cramer said Thursday. With the trade barriers keeping many of our products out of our trading partner’s countries, while at the same time imports from overseas keep flooding into the US, Chairman Ben Bernanke may think he has no choice.
His plan has been the topic of discussion at this week’s G-20 meeting, as other countries complain about the move. Regardless of the strategy’s merits, though, it’s doing a number on the greenback’s value, which is why Cramer thinks investors should own another currency as a hedge.
“Buy gold,” he told viewers during Thursday’s “Mad Money.”
Most retail investors can’t get their hands on Chinese yuans or Brazil reals, but they can add some of the precious metal to their portfolio. And Cramer thinks, even with gold at $1,400, that they should allocate 20 percent of their portfolio to it.
Gold will serve as protection against the weakening dollar because, unlike the other commodities with which it’s lumped in—wheat, wood, aluminum—you can buy things with it. But notice also its growing popularity around the world.
China, the world’s biggest gold producer, continues to buy more on the quiet. So does their emerging middle class. Why? Because after a rocky hundred years or so, they don’t trust their own currency. Now they’re hedging their bets with gold.
The same goes for India’s middle class, though their purchases are largely gold jewelry, while China’s focus is on bullion.
Here’s a stat worth noting, too: Over the last decade gold is up 17 percent. Stocks over the same period? One percent.
So how do you play it?
Cramer ranks his trades in this order: coins, bullion, the SPDR Gold Shares ETF and then the miners.
While there was a time when he would have steered viewers away from the last group, largely because they were too potentially negative variables, now he’s bullish on the miners. Cramer thinks money managers across the globe are seeing gold rise in price and they want in, and they’ll get in through stocks.
Cramer stuck with his favorites in the sector: Agnico-Eagle Mines , Eldorado and NovaGold Resources , the latter being a highly speculative bet on North America’s safe and as-yet-unexploited mines. In a world where fewer and fewer mines are coming on, at least in safe countries and stable climates, NG could become very attractive to money managers.
Maybe you’re wondering how high gold will climb before the run is over?
That “really isn’t really the right question,” Cramer said. “When gold gets to be about 5 percent of the world’s portfolios, I will reevaluate this 20 percent gold allocation for you at home.”
Right now it’s at about 0.3 percent.
When this story published, Cramer's charitable trust owned NovaGold Resources.
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