In a market that is as polarized as gold, it’s not uncommon to see pundits on both sides of a debate vehemently disagree on the basic facts of the discussion. One side utterly dismisses gold as a “barbarous relic”—as was once proclaimed by economist John Maynard Keynes—while the other side is convinced that prices for the precious metal are set to rise tenfold any day now.
“The New Bond King”
Jeff Gundlanch is the CEO of bond trading firm DoubleLine Capital. As a money manager, Gundlanch bases his financial predictions not on ideological grounds but on what he sees as the smartest way to use one’s money. (That’s his job, after all.) As such, we may reasonably assume that his advice has less of the partisan coloring that other experts are influenced by.
For instance, Gundlanch has been establishing an impressive track record of making the right calls on big moves in the global markets thanks to his objective, returns-oriented approach. He has acquired the moniker “The New Bond King” after correctly predicting the plunge in crude oil prices (2014) and the disastrous market for junk bonds (2015). (The original “Bond King” title belongs to Bill Gross, the co-founder of Pacific Investment Management Company, better known as PIMCO.)
Now, it seems that Gundlanch’s next target is the gold market.
The global economy does not have many bright spots in 2016 according to Gundlanch (and, granted, a whole slew of other prognosticators). Accordingly, this usually is bullish for gold, as most investors are inclined to flee for safety in bullion when the rest of the economy is sputtering and other asset classes are unattractive. His analysis squares with the historical trend of gold performing well following a period of economic uncertainty.
There are simply too many worrisome trends going on around the world, Gundlanch says. Overall, his outlook for the rest of the year “isn’t looking all that great.” The main factors that are contributing to this gloomy perspective are widespread and touch many areas of the world economy, speaking toward large movements in the markets.
He cites several major trends that will help gold climb back to $1,400/oz, about 30% of its current levels below $1,100/oz. Here are the highlights:
The IMF recently admitted the yuan to its basket of reserve currencies known as the Special Drawing Rights (SDR). The understanding was that China was pursuing reforms that would not only make its currency “fully convertible” in international transactions (i.e. there are two different exchange rates for “offshore” and “onshore” trades) but also ensure that the yuan’s value was freely determined by the markets (rather than decree).
So much for good faith. It turns out that since the IMF decision, the yuan has been an absolute headache for forex traders. The central bank has intervened and manipulated the value of the yuan repeatedly, sending many international markets into disarray.
Virtually every economic organization and financial institution has been progressively lowering its projections for GDP growth in 2016. This has been going on for the last 18 months or so, thanks to a lack of encouraging economic news and worsening conditions in China. On top of this, growth remains essentially zero in two of the other major world economies, Europe and Japan. Gundlanch sees the Japanese economy stuck in a “lost generation.”
Emerging Market Woes
The massive bull market for emerging markets that kicked off about a decade ago seems like a distant memory now. Beyond the pain for major oil-exporting countries, the commodities slump is devastating overseas profits for many EM economies that rely heavily on raw exports. Moreover, Gundlanch has absolutely no faith in the Federal Reserve to accurately gauge where the global economy is moving.
You can read more of Gundlanch’s interview with CNN Money by following the link.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.