Friday, 12 February 2016

Gold reaches $1,400

Jeff Gundlach: Gold To $1,400 As Faith In Central Banks Is Lost

It's a day ending in -day, which means it is time for another Jeff Gundlach fire sermon, as transcribed by Reuters. And while in his most recent address to the mortals the new bond king from DoubleLine focused on tremors in the bond market, predicting that "credit fund bankruptcies are coming," and that "the VIX needs to surge above 40 before a bottom can be made in the high-yield junk bond market", today he focused on a topic we have been covering all day, namely the collapse of faith in central bankers and the ascent of gold as a preferred asset class to paper money and bank deposits.

In his latest communication with the outside world, Gundlach said that gold prices are likely to reach $1400 an ounce "as investors lose faith in central banks", Reuters reported.

"The evidence that negative rates are harmful and not helpful has piled up to the point that the 'In Central Banks We Trust' mantra has finally been laid bare as a hoax," Gundlach said.

Well, yes, even Bloomberg finally admitted it.

But the question is why does Gundlach see gold rising to only $1400. After all if, as JPM calculated the ECB, BOJ and Fed will cut rates to as low at -4.5%, then gold - as the only form of currency that will remain in physical form and is not taxable (at least until the government confiscates it) - will end up far, far higher than just $1,400, which is less than 15% from the current price.

Indeed, if the Chinese population decides to reallocate just a tiny fraction of their $25 trillion in deposits away from cash and into gold ahead of the inevitable massive Chinese devaluation, the question is how many zeroes Gundlach's forecast will be off by.

Anyway, back to Gundlach who said that negative rates are highly correlated with equities, particularly with banks and financials. Their stocks have come under severe selling pressure as negative rates would hurt their balance sheets.
"What's scaring people is the '12 rate hikes in three years' in the dots. When are they going to change the dots? They are still there," Gundlach said about the Fed's dot plot.

He repeeated that "the market is going to humiliate the Fed. It's bizarro to have rate hike projections while at the same time, Yellen is talking about negative rates.

What a mess."

Gundlach's predictive track record speaks for itself:  last year, Gundlach correctly predicted that oil prices would plunge, junk bonds would live up to their name and China's slowing economy would pressure emerging markets. In 2014, Gundlach correctly also forecast U.S. Treasury yields would fall, not rise as many others had expected.

"The Fed raising rates in this environment is unthinkable," Gundlach said. 

Gundlach also told Reuters that he purchased more Puerto Rico general obligation bonds at around 70 cents on the dollar. He added: "You make money on the short side. The market is moving too fast for the Fed to keep up."

Or, if one wants to avoid the threat of idiotic short squeezes driven by idiotic headlines such as the recurring "OPEC is cutting production" hoax (note: the Saudis aren't cutting anything until the US shale sector lies in a rubble of chapter 11s and 7s), one can just buy gold.

Yes, the BIS will do its best to slam it down with naked shorting, but that only provides lower entry points to accumulate positions in a commodity which as even the Amazon Post's Keynesian lackey correctly put it, is "a bet that the people in charge don't know what they're doing." 

If by now it is not clear that the people in charge are idiots - and the US 2016 presidential race should have sealed it - it never will be.

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