Gundlach Warns of U.S. Debt Burden, Shifts to Gold

Jeffrey Gundlach, the CEO and Chief Investment Officer of DoubleLine Capital, has expressed concerns about the sustainability of the U.S. debt burden and interest payments, suggesting that this could lead to further investor withdrawals from dollar-denominated assets. During a forum in Los Angeles on Wednesday, Gundlach stated that long-term U.S. Treasuries are no longer considered a true safe-haven asset, and that a reckoning is imminent.

Gundlach compared the current market environment to the periods preceding the 1999 internet bubble burst and the 2006-2007 global financial crisis. He noted that the private credit sector's growth is reminiscent of the mid-2000s mortgage-backed securities market, where issuance and acceptance were at their peak. Gundlach pointed out that while the public credit market has performed well in recent months, the private credit market faces risks of overinvestment and forced selling.

Gundlach also mentioned that institutions like Harvard University may be forced to sell private equity assets due to funding cuts and resource constraints. He highlighted that the excess returns from these investments may not be as high as in the past. Gundlach's bold predictions have been accurate in the past, including his correct forecast of Donald Trump's 2016 presidential victory and the Federal Reserve's 50 basis point rate cut in September 2023.

Gundlach's firm, DoubleLine Capital, has been avoiding the longest-term U.S. government bonds in favor of shorter-term bonds with lower interest rate risk. This strategy is shared by other investment firms, including PIMCO and TCW Group. The 30-year U.S. Treasury yield reached a near 20-year high of 5.15% last month and remained elevated at 4.91% as of Wednesday. The divergence between long-term and short-term U.S. Treasury yields has become more pronounced, with long-term yields rising significantly while short-term yields have declined.

Gundlach also expressed growing enthusiasm for gold, which he sees as a true asset class rather than just a safe haven for extremists and speculators. He believes that a major paradigm shift is underway, with capital no longer flowing into the U.S. and gold becoming the preferred destination for high-quality assets. Gundlach has previously predicted that gold prices would break records, and this year's price surge has validated his forecast. In May, he predicted that gold could rise from its current price of around 3,350 dollars per ounce to 4,000 dollars per ounce.