Europe’s rocky outlook contributed to a market selloff Monday — and a golden opportunity.
While commodity prices took a beating along with the Dow, which closed down 2.1 percent, “Mad Money” host Jim Cramer went bullish on gold, which closed below $1,700 an ounce.
Spot gold declined 3.1 percent at $1,671.49 an ounce while U.S. gold futures dropped $46.50 to $1,678.60 an ounce.
“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,” he said.
Solving the European economic crisis could mean “potentially crunching a minimum of $10 trillion in bank debt,” which would create a severe deflationary climate.
“Almost everything will be worth less, and you can see the value of property declining immensely in Europe,” he said. “In that scenario, everybody’s saying, ‘No inflation? You’ve got to sell your gold.’”
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.
“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,” he said.
“That’s why I think gold’s current direction will turn out to be wrong.”
(Related Story: CNBC.com Special Report — Gold 2011)
Cramer gave three more reasons for why he believed gold prices will rise after some near-term fluctuation:
- A run on European banks would lead to the printing of more currency in an effort to stem a worsening recession “that would lead to the destruction of the euro,” he said.
- Gold demand is as strong as ever from central banks around the world because emerging nations — and their citizens — still want to own the precious metal.
- Supply is limited. The cost of mining the metal is up, gold exploration is taking place in more unstable regions and large-scale projects are “proving to be wildly expensive, if they work out at all,” he said.
“Yes, it’s true that a severe recession in Europe is bad for gold, but we had one here and how did gold do? It went up, not down,” Cramer said. “So keep owning gold. And if you don’t own any, I would be buying some here.”
Investors looking to buy gold, Cramer said previously, should look at: gold bullion, which is expensive because it needs to be kept in a depository bank; gold coins from the U.S. Mint; and finally, SPDR Gold Shares ETF, which is probably the easiest way to go for the gold.