The case he outlines comes mainly from an associate of his, technical analyst Carley Garner of DeCarley Trading.
Although some of Cramers critics say his endorsement of the yellow metal is a contrarian signal that gold is back on its way down, the former Goldman Sachs trader and hedge-fund manager has always been consistent in his stance: that investors should have modest exposure to gold but not bet the farm on it to hedge against economic chaos and downturns in the stock market.
Golds mojo is back: Ive always been a big believer in the idea that you should always own at least a little gold, he said, whether that be in the form of physical bullion, ETFs, or dependable mining shares. Now, after spending 4 years in the wilderness, gold is starting to look like its gotten a little bit of its energy back.
Examining recent regulatory filings in the futures markets, Cramer notes increasing optimism in gold among large fund managers, but nothing outside of historical norms. Therefore, if the big boys want to bet on gold, they still got plenty of money left on the sidelines, which means theres a ton of firepower to send the precious metal higher still.
Positive fundamentals return: Cramer then goes on to review how changes in central-bank rate policies are now in golds favor. The fundamentals have absolutely gotten more positive for gold in recent months, he said, thanks largely to Japans recent push into negative interest rates. You actually lose money by letting your cash sit in a bank vault overnight, he said, and that environment helps make gold a more attractive investment. Meanwhile, in the U.S., the Fed seems to be backing off its plan to hike rates four times this year. We might only get a single rate hike this year, he said.
The path of least resistance is now higher, Cramer continued, but that doesnt mean its going to happen overnight. With the gold-buying frenzy of the Chinese New Year holiday over, bullion is facing seasonal headwinds, and the roughly $200 parabolic move its made so far this year is unsustainable without a cool-off period. The gold market will need time to digest these gains, he said.
Therefore, gold is going higher, but it might need to go a bit lower first before this newfound rally can really get into gear, Cramer said in summarizing Garners forecast. Golds headed higher longer-term but right now its very overbought. Parabolic moves tend to correct, and they correct large.
However, for longer-term investors, gold could make its way back up to $1,500 even if it encounters some resistance en route, Cramer said. He said the metal could fall back to lower levels near $1,050, but its moves Thursday suggest that the upward path has been resumed.
Gold has finally woken up from its multiyear slumber, and the precious metal is poised to give you a powerful long-term move higher, he concluded, with the caveat to expect some selling and profit taking before the big move higher continues.