New Bond King: How Can U.S. Stocks Not Fall? Gold Prices Will Reach $4,000

In the face of recent market volatility, the "new bond king" Jeffrey Gundlach continues to express concerns about future uncertainties.

On May 8, during an interview with CNBC, he stated that the current market uncertainty mainly stems from the paradox of economic weakness and rising long-term interest rates, as well as the increase in unemployment rates and abnormal changes in the yield curve.

He noted that the unemployment rate is rising and is above its 36-month and 12-month moving averages, which is typically associated with economic recessions.

Despite economic weakness, long-term U.S. Treasury yields are rising. He believes this situation will persist, as the interest expenses on debt are very severe, reaching $4 billion daily.

He believes that the demand for gold arises from concerns about geopolitical turmoil, tariffs, and the existing massive debt, stating, "Gold is the true monetary asset." He predicts that gold could rise to $4,000.

Regarding U.S. stocks, he believes the S&P 500 has significant room for decline, suggesting that it needs to drop from the current 5,600 points to around 4,600 points to find support.

New Bond King: Beware of Recession, Bullish on Gold, S&P Target 4600

Gundlach stated that the unemployment rate is rising and is above its 36-month moving average, which is typically associated with economic recessions. At the same time, the unemployment rate is also above its 12-month moving average, and the "2-year-10-year" yield curve has been inverted for a long time. Although it has now turned positive, it usually signals economic problems.

Additionally, the yields on low-quality junk bonds (CCC-rated bonds) have risen significantly, and the yield spread between CCC-rated bonds and BB-rated bonds has exceeded its 200-day moving average, which is a bad sign.

He believes that investors are more inclined to hold more liquid assets rather than long-term bonds, as the yield curve may steepen.

In this market volatility, gold has shown unique safe-haven value. Gundlach mentioned:

"Gold is no longer a tool for short-term traders or survivalists to speculate, but rather an asset class for long-term holding."

He believes that the demand for gold arises from concerns about geopolitical turmoil, tariffs, and the existing massive debt:

"Gold is the true monetary asset."

Gundlach predicts that the price of gold could rise to $4,000 and believes this is a long-term trend.

As of the time of writing, the spot gold price is $3,342.36 per ounce, leaving a 19.68% upside potential to Gundlach's target price.

In April, Gundlach set the support level target for the S&P 500 index at 4,500 points and still believes it will reach this level, possibly slightly higher (around 4,600 points).

The following is an excerpt from the interview:

Jeffrey Gundlach:

We are in a good position. We can wait and see. But I think there are some uncertainties involved. I am surprised that the market has not performed worse in the stock market because, in my view, we are back in the situation of "Mr. Magoo," where we are driving around and bumping into things. He acknowledges the risks, including higher inflation and higher unemployment rates. But he stated that he cannot explain what we need to see to be concerned about one of the mandates. So we can only wait and see which tree we will bump into. I feel that we will eventually bump into the tree of tariff inflation or the tree of rising unemployment rates, which will affect future federal funds rates.

But the unemployment rate is rising. It is above its 36-month moving average, which is associated with a recession. The unemployment rate is also above its 12-month moving average. The 12-month moving average is also important, but at the same time, the yield curve, specifically the "2-year - 10-year" yield curve, has been inverted for a long time. Now it has turned positive, but it usually signals economic problems; however, the 12-month moving average of the "2-year - 10-year" yield curve is now positive, which has never occurred after an inversion since 1980 without a recession.

So we are watching the changes in the employment situation very carefully, but our strategy remains largely unchanged. We have maintained our interest rate trading range on the yield curve for quite a long time. Paul himself mentioned that the yield on the 10-year Treasury bond was 2.5% two and a half years ago. And indeed, the long end of the curve is behaving unusually, similar to the Federal Reserve's easing cycle. We have cut rates by 100 basis points, but long-term rates have risen. This situation typically does not happen.

I think this continues to support my view that as the economy weakens, long-term rates are likely to rise. This is contrary to the experience of most people; even if you have 40 years of experience, most would think that during a recession, the dollar appreciates and rates decline. But in fact, the opposite has happened this time.

I do not think this is merely a coincidence or an anomaly. I believe this situation will persist because the interest expense on the debt we have been discussing is very bad, reaching $4 billion a day. Aside from possibly discussing some unconventional policies, I do not know what else we can do to address this situation. If long-term rates do not decline and even rise in the face of economic weakness, we may have to implement yield curve control, which we did in the 1940s and early 1950s. They have also done this in Japan for a long time.

We will wait and see what happens, but we remain vigilant, and I think when I talk to our major clients, they all say, we want more liquidity, we want to increase credit holdings. We do not want to hold long-term bonds. We believe the yield curve will steepen. But unusually, when you reach this consensus, you are at a turning point, but that has not happened. These trades are still working. Increasing holdings of quality assets is definitely working

Low-quality junk bonds, specifically CCC-rated bonds, are now seeing a significant rise in yields, while the yield spread between BB-rated bonds (the highest quality bonds among high-yield bonds) and CCC-rated bonds has exceeded its 200-day moving average, which is a very bad signal.

CNBC host Scott Wapner:

Last time we talked, I believe this is correct, you had more cash at DoubleLine than you have for a long time, if not ever, and that it was still too early to deploy. When we spoke in early April, we were going through a rather tough market period. Today, we find ourselves in a different scenario. So, how is it going?

Jeffrey Gundlach:

I think we are in a mid-term risk-off market. What I find really interesting is that amidst the volatility in risk assets and parts of the bond market, the only thing that hasn't moved much is gold, which has broken through $2,000, risen to $3,000, and is now around $3,400. It hit a new high yesterday. Today, it has dropped.

But I think this tells us something. I think it tells us that we are in an era where gold is no longer a speculative asset for short-term traders or survivalists, but rather a long-term hold. I think people are viewing gold as an asset class due to concerns over geopolitical turmoil, tariffs, and the existing massive debt, and people are wondering how we will handle it. So gold is a true monetary asset. I find this very interesting, and I still believe gold will rise to $4,000.

I think I mentioned this in April. I think you asked me about $3,000. I think it was slightly below $3,000 at that time. I said that doesn't count as a prediction. I think we are getting close. It could rise to $4,000. So I think you will see a breakout.

When I spoke in April, I set the support target for the S&P 500 index at 4,500 points. I still believe we will reach that level, or slightly higher, maybe around 4,600 points.

Only then will I really start to consider deploying funds for longer-term investments. Obviously, we are not going to make investments for a month. Our typical investment horizon is about 18 months to two years, which is our view on investment horizons, especially in fixed income, where we do not trade as frequently as many competitors