Famed bond fund manager Jeffrey Gundlach gave a presentation at the New York Yacht Club yesterday in which he reiterated a $1,400 target for gold by year end. From what I gather, Gundlach has two primary tenets to his bullish gold thesis:
- Negative interest rates in Europe will make gold very attractive relative to holding negative yielding cash or extremely low yielding sovereign debt
- Fears of Fed rate hikes have been weighing on gold for some time and these fears are overblown because the US economy isn’t yet strong enough for the Fed to embark upon a protracted rate-hike cycle
One slide in particular caught our eye as being especially noteworthy:
Including central bank purchases both the euro area and Japan are shrinking the amount of sovereign debt in the market. This is quite significant and helps to explain why eurozone sovereign yields are at historically low levels. Gundlach is right, gold looks very attractive compared to holding euro cash or euro denominated sovereign debt. I wonder when the market is going to catch on….