As Gold Drops, Cramer Reevaluates His Recommendation

Although the price of gold fell near a six-month low on Tuesday, holding just above $1,600 an ounce, "Mad Money" host Jim Cramer continued to recommend investors have a position in the precious metal.

The yellow metal fell 0.5 percent as investors were drawn to riskier assets as the S&P 500 climbed to a five-year high with a string of recent merger activity suggesting stocks could offer even more value. Technical weakness has put downward pressure on gold, too.

(See: Are Hedge Funds Dumping Gold?)

Yet Cramer suggests investors continue to own some gold because it tends to go up when everything else goes down. He likened it to an insurance policy against economic or geopolitical chaos, uncertainty and inflation. When other stocks would fall in response to such calamities, gold tends to rise. Owning gold minimizing your risk to the downside, he said.

Over the years, Cramer has recommended playing gold through the SPRD Gold Shares exchange-traded fund. The ETF has struggled lately, right along with the price of gold.

Tom Grill | Age Fotostock | Getty Images

(Read More: Market Pro: Why Gold Is In Trouble)

To learn more about where gold and the GLD might be headed, Cramer consulted Tim Collins, a highly regarded technician on Wall Street. Watch the video to see the full analysis.

In the end, though, Cramer said that while he wouldn't abandon gold, he wouldn't add to his position either.

"You need some gold in your portfolio as insurance because gold goes up when everything else is going down. That hasn't changed," Cramer said. "But if you're overweight gold here, it wouldn't be crazy to trim back your position a bit and move some of that money into something with more short-term upside."

Read on for Is 2013 the Year of $50 Oil and $1,200 Gold?

When this story was published, Drew Sandholm owned the GLD.

Call Cramer: 1-800-743-CNBC

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