Is Now The Time To Own Gold?
Billionaire investor Jeffrey Gundlach thinks so. The Doubleline Capital CEO believes now is the time to get into the yellow metal, as numerous key issues may soon come to a head. He cited last year’s non-dollar performance in gold and how gold has now started to perform in dollar terms as well. Gundlach discussed how gold spent much of the past two and a half years moving sideways but is now back above its 200-day moving average as the dollar weakens. Gundlach is of the opinion that a weaker dollar will give gold a boost this year and that the currency is unlikely to revisit the 115 area seen in recent months. Gundlach also cited the yield curve as a “screaming recession” due to the Fed’s aggressive rate hikes in the second half of 2022. That may be just one of several indicators pointing to a recession in the year ahead.
The inversion between three-month bills and ten-year notes has not been this much since the early 1980s. The inversion did again come close to current levels in 1999/2000 and was then followed by a nasty recession. That recession occurred following a stock market that had become grossly overvalued. One could certainly make the argument that stock markets are now just as, if not even more, overvalued as then and that a recession could be around the corner.
Gunlach seems to also feel that inflation could even go negative in 2023. If the Fed is able to get inflation back to the 2% level, there is no reason to assume it will just stop there on a dime. Inflation could very well overshoot the target and swing into negative territory before finding a more comfortable long-term level. He also believes the Fed will fail to get rates above the 5% level and will start cutting before 2023 is out.
The Outlook for the Fed and monetary policy is certainly something markets will remain focused on as the new year gets rolling. The Fed recently raised rates again, but by 50 points this time instead of the 75 points it had raised rates for several consecutive prior meetings. The Fed could continue in this approach for the first half of 2023, raising rates by 50 or even 25 points at a clip. The Fed is not in a hurry to begin easing rates again and may be careful not to overshoot and put the economy into recession. A recession could already be a done deal, however, as some key data points may indicate trouble ahead for the economy.
The gold market may remain sideways to higher until more clarity is seen from the Fed. The bulls will target the $1900 level, possibly in the days ahead, as the next major resistance area. The bears will look to produce a close first below the $1800 level, and then may try to target the upside breakout area at $1700.