Why Gold’s Price Is Right

As gold screams past new high and after new high, and it crossed the $1,400 mark on Monday, bubble-wary investors struggle to explain the move.

Just last week The Wall Street Journalran a story about how there’s no real fundamental basis for gold prices. Gold supplies are abundant, while jewelry sales have lagged because of sticker shock, the article said. So any uptick is a product of pure speculation.

At the same time, in Monday’s Financial Times, World Bank President Robert Zoellick suggested a debate on a return to the gold standard. While Cramer acknowledged it was a hat tip to gold’s returned prominence, he doesn’t think it’s reason enough to buy it.

But back to the Journal piece. Cramer said industrial demand has never been a real driver for gold. On the consumer side, though, he sees no slowing of demand regardless of price, at least when it comes to the long-term outlook. Especially when you consider the growing middle classes of countries like China and India.

Cramer also pushed back against the idea that gold reserves are plentiful and ubiquitous. The truth is that smaller and smaller quantities are being found, and what is comes from either unstable countries or unstable climates.

Plus, speculative demand is a smart way to diversify as international trade wars debase most currencies. Gold is a currency in itself.

Cramer remains bullish on the precious metal, and for several reasons. Still too few people hold it in their portfolios: just 1 percent worldwide. (He thinks the price will run until that number reaches 5 percent.) Gold is a safe place to put your money in a time of economic uncertainty. And it’s outperformed stocks over the past decade, with 2010 looking to be its tenth straight year of positive gains.

“Quite simply,” Cramer said, “gold’s a terrific place to be.”

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