CNBC's Jim Cramer on Wednesday told investors that gold is poised to rally, making now an optimal time for investors to pounce.
"The charts, as interpreted by the legendary Larry Williams, suggest that the general public's giving up on gold en masse and he thinks that that makes it the perfect entry time to do some buying," the "Mad Money" host said.
Gold futures fell on Wednesday, facing pressure from a stronger U.S. dollar and Treasury yields after Federal Reserve leaders' hawkish comments on inflation the day before took metals lower.
Gold is considered a safe investment and often attracts investors during periods of economic and geopolitical turmoil.
Cramer began his explanation of Williams' analysis by examining the weekly action of gold going back to 2014, paired with the Commodity Futures Trading Commission's Commitments of Traders report data.
The CFTC tracks futures positions of small speculators, large speculators like money managers and commercial hedgers that include companies that work with the commodity.
When small speculators get too bullish on gold, it's often a sign that it's about to peak, according to Williams. Conversely, gold tends to be near a bottom when small speculators get too bearish.
The Commitments of Traders data, at the bottom of the chart, reveals that small speculators are in their smallest long position since May 2019 – right before there was a major gold rally. Also worth noting is that small speculators were in their largest net long position in four years during gold's recent peak in March.
While this doesn't mean investors should always do the opposite of what small speculators are doing, this is a sign that gold could gain soon, according to Cramer.
"That would be too glib, but he points out that in the last 9 years, whenever their net long position in gold has been this low, the actual metal has rallied. And the best-selling points all came at moments when they had large long positions," Cramer said.
For more analysis, watch Cramer's full explanation in the video below.
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