Cramer: Heavy Metal Pt. II: Investing in Gold
As of Feb. 26, the price of gold was approximately $940 per ounce, and demand for this precious metal is on the rise. On Friday, we looked at gold scams and how to avoid them. Now we’ll turn to investing in gold.
I’m going to say the same thing today that I said on Mad Money last Wednesday night: It’s all about gold and why you should be a player, even though gold is going to get spanked in the short term.
It might seem nonsensical, but stay with me. There really is gold at the end of the rainbow here, you just have to know where to look, and how to get it.
As I said on Mad Money, gold has made a huge move since the beginning of 2009, after crushing stocks in 2008 (a 5% gain for gold versus a 30% decline in the Dow Jones Industrial Average). Actually, gold reached as high as $1,000 per ounce, before bouncing back.
Gold will keep dropping, I expect, maybe down to $900 per ounce. Right now it’s just too overbought, and too over-owned. Too over-everything, actually.
So why am I out there on national television recommending gold? A fair question—and here’s a fair answer.
You need gold in your portfolio. When gold prices fall, they usually fall fast, and they bounce back sharply, so it’s a difficult investment to get back into. I want you in now so you can benefit from that bounceback from $900 (or even lower, if the price of gold overshoots my mark).
The hard metal’s performance is impressive. Back in November 2005, the price of an ounce of gold and the price of one share of Google (Stock Quote: GOOG) were about the same, at $700 (per ounce for the gold). Today, the price of one share of Google stock is $340. As I said before, the price of gold is about $940 an ounce (and remember, it was recently above $1,000).
Gold is also a great hedge against a sour economy. Since I’m skeptical about Washington’s plan (if you can call it that) to fix the financial and housing sectors, gold is our best hedge against various bailout bills and stimulus plans, all of which invariably lead down a path to higher inflation.
I’m going to tell you how to invest in gold, but before I do that, I’m recommending that gold only comprise 15% of your investment portfolio. I also want you to wade in gradually, so you’re buying as prices decline. It’s chaotic out there right now in the economy and in the financial markets. So let’s cap our gold portfolio, take a gradual approach, and learn the ropes first.
There are several ways to invest in gold and I’ll cover the best ones. But I will say that for average investors, buying gold through stocks and exchange-traded funds is probably the best way to go (more on that in a moment).
