As gold continued to rise to new levels on Tuesday, CNBC's Jim Cramer advised against trading the precious metal as it could peak.
For investors who want to play on the course for a long time, he recommends buying Barrick Gold.
"The charts, as interpreted by Carley Garner, indicate that recent gold and silver rallies are very precarious," said Mad Money's host. "She believes that they could both have one last leg up, and it could be substantial, but then she expects the precious metals to fall back to Earth."
Gold, a safe haven, has risen 8% this month, and the commodity is preparing to close its fifth consecutive positive month for the first time in almost a decade. The price rose above USD 1,974 on the day of trading, but has since fallen back to USD 1,950. Meanwhile, the stock market was approaching its own hits in February before the S&P 500 collapsed when a new outbreak of corona viruses swept the globe.
Garner, a commodity expert on whom Cramer relies on chart analysis, concluded that the 32% increase in gold futures since mid-March is borne not only by investors seeking security in an uncertain market, but also a weakening dollar, Cramer explained.
Trillions of dollars in federal government emergency spending and Federal Reserve money printing programs contributed to a devalued dollar, he said.
Gold and the dollar index usually trade in opposite directions. Both charts were trading along a similar trend line between March and May before returning to normal in June, Cramer noted.
"Garner believes that we have now reached the point where so many traders have jumped on board this negative correlation car that both gold and the greenback have been brought to an overstretched and therefore precarious level," he said. "If the dollar can continue to fall, she believes gold can continue to rise, but that has become a powerful big if."
Garner is a co-founder of DeCarley Trading and author of the book "Higher Probability Commodity Trading".
Garner believes that the price of gold could get another boost if the dollar fell below its support floor at 93, Cramer said. If it drops to 88, the boost could be pretty significant, he added.
Garner can see that the price of gold could rise up to $ 2,000 or possibly $ 2,300 in another scenario before peaking, said Cramer.
"At the moment, she believes the previous situation is more likely, but if we get another massive run, you have to understand that it will likely be a fast probe that won't last very long," he said.
"If a gold boom goes bankrupt, it gets really ugly. As soon as the collapse begins, Garner thinks we can trade to $ 1,525 or $ 1,450, or" maybe $ 1,300 if we go to the uptrend support line ".