Is Jeff Gundlach's Bullish Gold Call Too Early?

June 23, 2014

Veni, vedi, inflation—or something like that, as dollar debauchery rolls on ...



[This article originally appeared on and is republished here by permission.]

Multibillion-dollar fund manager Jeff Gundlach of DoubleLine Capital reckons the gold price could reach $1500 by year's end.

His reason? Besides a snap-back from last year's gold price drop, he points to ongoing debasement of the world's No. 1 currency, the US dollar.

DoubleLine's founder isn't the first big-name money manager to compare the dollar's shrinking value with what Ancient Rome did to its silver coinage. (You can see his charts here.) But Gundlach is certainly the most "mainstream" gold fan we've seen in a long time.

That bodes well for broader interest in precious metals. The industry...and longer-term holders...could do with fresh investment flows.

As a short-term play however, DoubleLine's view risks the same mistake every other "inflation!" worrier made in 2009-2012. Because there's a lot of ruin in the No. 1 reserve currency. And what one analyst, ex-SocGen strategist Dylan Grice, in late 2012 called "the largest credit inflation in financial history, a credit hyperinflation" still hasn't been matched by anything like record-high inflation in consumer prices.

That doesn't make buying gold wrong. But the hindsight of today's 25% loss certainly makes October 2012's buyers look early. Because a long-term trend doesn't guarantee a short-term outcome. And even when debasement does start showing up as inflation, that will be "neither sufficient nor necessary for gold prices to go higher," as another name, ex-Mitsui and UBS analyst Andy Smith said in late 2013, also comparing the modern US with Ancient Rome.

"All I see is more of the same," Grice wrote in October 2012. "More money debasement, more unintended consequences and more social disorder. I remain very bullish on safe havens."


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