This is what Jeffrey Gundlach is watching in the gold price
(Kitco News) Billionaire "Bond King" Jeffrey Gundlach said gold had performed well this year, and now it needs to cross the 200-day moving average on a weekly basis to send a much more bullish signal.
"Gold [has] done pretty well this year. We were looking at it in dollar terms, and the dollar is still up pretty substantially this year, although it is off its highs. But gold appears to be stabilizing around its 200-day moving average," DoubleLine Capital CEO Gundlach said during a webcast that aired last week.
Gold crossed the 200-day moving average Tuesday, but for it to really make a difference, the precious metal needs to have a weekly close above that level, according to Gundlach. The 200-day moving average is around $1,821 an ounce. And on Tuesday, February Comex gold futures were last trading at $1,823.10, up 1.72% on the day.
"Moving above the 200-day moving average would be pretty interesting. We would want to see a weekly close, not just a day," Gundlach said.
DoubleLine Capital CEO pointed to gold's predictive behavior when explaining why gold is starting to move up. "Maybe this is predictive, looking forward to a weaker dollar … Dollar has peaked out," he said.
Also, Gundlach reminded investors that due to dollar strength, gold is up in many other currencies. "When you think of gold in dollar terms going sideways, it is going up in a lot of other currencies," he noted.
And in 2023, the Federal Reserve could end up being more dovish than other central banks, which is what the dollar traders could already be anticipating, Gundlach added.
The Fed to cut rates next year
DoubleLine Capital CEO said he sees the Fed moving another 50 basis points on Wednesday, then another 50 basis points in February, with rates potentially peaking at 5% next year.
But what's important for next year is that once the Fed reaches 5%, it won't be able to keep rates at that level for more than one meeting, and it will be forced to cut. Gundlach pointed to the bond market as the basis for his forecast.
"You get to 5%, you repeat it, and then the market thinks it will start falling," he said. "The bond market is pricing in that the fed funds rate one year [later] will be the same as the fed funds rate at the December meeting. This leads me to wonder why even bother with these hikes? Dig a hole just to fill it back in."
Gundlach warned that the Fed might not even make it to 5% as the data is "weakening too rapidly."
His inflation outlook also stands out — Gundlach sees inflation coming down to 4.5% in the middle of next year and then moving towards 3%. But if the Fed succeeds at bringing price pressures down to those levels, then the drop won't stop there. Gundlach is not even ruling out negative inflation.
"If inflation comes down all the way to 3% — about a year from now — I predict it will not stop there. The inflation rate will go well below that. Just as it overshot tremendously back in 2021, it will overshoot plausibly on the downside. CPI will go far below 2%, perhaps negative. In this case, you would have a massive bond rally," he explained.
On owning commodities, Gundlach said to wait for the market to prove itself first. "It makes sense to wait … I would want to see the commodity market get some strength going and move above its 200-day moving average," he noted.
Full-on recession watch
DoubleLine Capital CEO is also on full-on recession watch, citing declining consumer confidence and the inversion of the yield curve. "The inversion of 2-year and the 10-year Treasury yields. It is starting to look like a recession is quarters or perhaps even [just] several months away," he said.
Crypto space: 'rampant speculation, there is never one cockroach'
When asked about the crypto chaos, Gundlach pointed out that Bitcoin and other cryptocurrencies do well when there is a lot of government money around.
“[It is the] ultimate asset for speculation. The crypto market [is] highly dependent on government money. Bitcoin went up to $69,000, and now it is around $17,000 and dead in the water. Return for Bitcoin was nothing in the past five years," he said. "Crypto goes on faith and speculation. And when you have rampant speculation, you get fraud."
Gundlach warned that when there is a lot of fraud around, scammers tend to imitate each other. "When you have fraud, you get overnight bankruptcies. That's what happened with FTX. There is never one cockroach. Scammers get envious of other scammers and imitate their scams. You get these types of events in frothy, overvalued markets that are propped up by speculation."
He ended the discussion on crypto by stating that he never owned Bitcoin or any other cryptocurrency and never shorted any.