Why gold is hot right now

Don't be distracted by attempts to correlate gold with global events or interest rates. The rush is as simple as supply and demand.

By Jim Cramer Dec 14, 2010 11:38AM

more investing advice and stock picks from jim cramerGold marches to its own drummer. I keep saying this, and I keep hearing otherwise.

 

Two weeks ago, gold was supposed to be weak because the dollar was strong. Last week, gold was supposed to be weak because interest rates were up. But gold is going higher because of demand wholly separate from these correlations.

 

Yes, it's true, we have seen gold go up with low rates -- it becomes easier to buy. But we have seen it go up during periods of high rates. We know that gold might be going higher with China opting against tightening. But I also think gold demand is stripping supply in China regardless of inflation, because the government is actually encouraging gold purchases. Meanwhile, gold buying in India has been unabated all year.

 

I can't tell you how many times people have said to me that "this is the peak" for gold. Last week when I said "buy more into the weakness," I was blasted on Twitter for telling people to buy right into the top.

 

Why is it a top?

Did we find much more gold? Is there less of a demand? (Did you read last week that the U.S. Mint has too much demand for silver coins and that it is worried about scalping?) Post continues after video:

There might be a moment next year when we see a dip in gold, when the International Monetary Fund has to sell some in order to shore up Greece, Spain, Ireland and whatever country the bond vigilantes hit next. That's a real supply issue.

Otherwise, the endless attempts to make gold correlate with currencies or world events or interest rates continue to confound people, causing them to miss the trading dips that are so important to buying the world's currency -- which is how people increasingly view gold in this country and abroad.

 

Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.

 

Follow Cramer's trades for his Charitable Trust.

 

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