The Precious Gold to Game the G-20

Jim Cramer

11/11/10 – 04:00 AM EST

Tough to play the G-20. You know why? Because I think that the only way to make money off the conference is to bet that it won’t go well or that it will be reported that it doesn’t go well. That means buy gold.

Gold’s been on a tear of late. I am sure there is a propensity to believe that the run is done, or has to be done soon. But meetings like the G-20 are going to be all about the U.S. telling the world, “Look, this is how it is going to be. We are not going to allow you to take our markets, have us defend you militarily, let you dump goods on us and tell us what to do.” We are in a “new sheriff in town, and his name is Bernanke” mode.

That’s a prescription for people who own dollars to go into the only currency that will hold its value no matter what, one that has increased in value for a decade: GOLD.

Coming out of the G-20, I think it will be more evident than ever that gold is not a commodity but a currency, a substitution for every currency out there that’s duking it out with the dollar, not just the dollar itself.

I have always favored the SPDR Gold Shares(GLD) as a way to play gold. But of late I have switched directions. With gold so high, and so many miners with $400 costs — like El Dorado and Agnico Eagle — I think it is time to overweight the miners over the actual commodity.

My new favorite, the one we have been buying aggressively for ActionAlertsPlusNovaGold(NG) — is still one more play for the G-20 and its aftermath. It is a multiyear play because you are really just buying the asset of gold, not the mined gold. That’s because I do not expect any production from NovaGold until 2015 at the earliest.

I know this will sound like a strange analogy, but NovaGold is like a biotech stock. It is something that you know will be huge — it’s got the largest deposit of gold in North America — that I think will only build in value over as I believe that gold is going to have a very long run.

I have been telling people that, until gold represents 5% of an average portfolio manager’s holdings, they should continue to accumulate the precious metal. Not until then — wherever the price is — will we have reached the peak of gold.

Given that gold is less than 0.5% of the average portfolio manager’s holdings, you can see why I believe we are going to see a long-term run in gold as we get to my target. That’s why having a long-dated asset like NovaGold is the best way to play the trend.

The G-20 will be just another Bernanke bash session. I say take that bash session for what it is, an attempt to get the dollar down to where we are going to see economic growth imported to our country. That means the dollar will be a terrible place to be. Whether you think it should or not, gold will be the default currency.

I am not daunted by the $1,400 price. Meetings like the G-20 just remind you how valuable gold is.


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