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Bond King Jeffrey Gundlach: 'I'm neutral on gold and bitcoin,' 25% of your portfolio should be in real assets

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(Kitco News) With a new year comes a new forecast, and DoubleLine CEO Jeffrey Gundlach is now neutral on gold and bitcoin while advising investors to have 25% of their portfolio in real assets.

"Twenty-five percent of a portfolio should be in some real asset play, could be a commodity, particularly industrial commodity," said Gundlach in a webcast on Tuesday.

Examining his previous calls, Gundlach said that he is now neutral on gold and bitcoin. "I turned neutral on gold a few months ago. I'm still neutral," he said. "Gold is not holding support."

Gold prices peaked at a new record high of above $2,060 an ounce in August and have been consolidating below $1,900 an ounce ever since. At the time of writing, February Comex gold futures were trading at $1,859.40, up 0.82% on the day.

Gundlach was bullish on gold last year, but right now, he said the precious metal is not doing much while it looks for direction. "I'll be neutral on gold while it flops around."

As for bitcoin, Gundlach turned neutral on it when the cryptocurrency crossed the $23,000 mark in mid-December. At the time of writing, bitcoin was trading at $34,687, up 1.65% on the day after peaking at a new record high of above $41,000 on Friday.

"It looks like a blowoff to me. Bitcoin is having $1,000-$2,000 intra-day moves. The market now looks dangerous with this type of volatility," he said. "I don't like having to worry that I'm going to lose 20% in an hour."

Gundlach noted that the cryptocurrency has been making "outrageous moves" based on institutional investment narrative. "It fuelled the frenzy," he said.

However, despite currently being in overbought territory, Gundlach pointed out that gold bugs who said bitcoin was a sham "have failed on their thesis since summertime."

When it comes to future projections, Gundlach highlighted the inflation/deflation theme as the prominent one for 2021. He warned that investors need to be prepared for both inflationary and deflationary environments.

"Inflation is a big game-changer. It has been very stable. Core CPI has not been in the 3% territory in the last 25 years. Will that continue? Definitely no. Will we devolve into deflation due to debt? Maybe. Inflation? Maybe," he said.

Part of an investor's portfolio needs to have deflation protection, such as cash and bonds, Gundlach explained.

Another part needs to have inflation protection. This is why Gundlach advises having 25% dedicated to equities, in particular Asian emerging markets, and another 25% in real assets, including real estate, industrial commodities, gold, or even bitcoin.

DoubleLine CEO anticipates very high volatility in 2021 as the COVID-19 vaccine boosts demand and economic growth starts to kick in. Once that gets going, it will be important to differentiate between real economic growth versus new activity based on stimulus injections, he warned.

Another theme, according to Gundlach, is the rising wealth inequality, which is clear from the technology sector that represents 6% of the GDP, 2% of employment, and 38% of the S&P 500 wealth, he noted during the webcast.

When it comes to the U.S. dollar, Gundlach is bearish in the long-term, stating that "the dollar is in a secular downstream." He added that the dollar would ultimately see a big direction change lower in light of the twin deficits expanding.

Gundlach described this recession as the most unusual one, citing that a lot of people were seen paying off their debts with the stimulus money they received. He also noted a prevailing shift towards working from home, adding that business leaders will have to restructure businesses to accommodate more work from home in the future.

Some other critical investment advice from Gundlach was to pay attention to emerging markets like South Korea. "Emerging markets, especially Asian emerging markets, is a good place to have an overweight stock portfolio in 2021," he said.

South Korean shares are up nearly 10% since the start of the year, Gundlach pointed out.

Another tip is industrial metals, which have been rallying quite a bit. "They recovered after March and almost hit a new high. A trend change is underway," Gundlach said.

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