Jeffrey Gundlach, CEO of DoubleLine, sees headline inflation topping 3% this summer and staying above that level for a few months amid massive fiscal stimulus and an economic reopening. The so-called bond king also made big calls on bond yields and gold in his investor webcast Tuesday evening. Here are the highlights. 3% inflation coming Higher inflation expectations have been pushing bond yields higher in a rapid pace recently, raising concerns about equity valuations. Gundlach said the Federal Reserve is not too worried about an overshoot in inflation. "The Fed chooses to be unconcerned about a period of time with inflation running above 3%," Gundlach said. "In my opinion, not only are they unconcerned, they welcome inflation being higher than interest rates. They like negative interest rates because they know that negative interest rates help to forestall the incredible deficit and unfunded liability problems the United States has." Fed Chairman Jerome Powell said last week that inflation is likely to rise as the economy recovers, but he thinks it will be temporary and won't be enough to change the Fed from its accommodative monetary policy. The consumer price index saw a 0.4% rise in February, and a 1.7% increase on an annual basis. Gundlach said price pressures could shoot even higher if one compared the consumer price index with the ISM Manufacturing Prices Paid Index. "One could actually plausibly predict that headline CPI could go over 4% at some point in about four months from now. That I think would really spook the bond market," Gundlach said. Gold is set to bounce Gundlach believes gold looks attractive now after a pullback triggered by rising yields. He said Monday's close "might be the low in gold for a while." "Gold really underperformed other froth assets like bitcoin by incredible amounts, by almost inconceivable amounts since that peak in gold above $2000," Gundlach said. "Gold is very likely to bounce because the sell-off has been pretty powerful." Bullion topped $2,000 an ounce in August for the first time ever amid a historic flight to safe-haven assets. Gold futures have fallen about 10% to around $1,700 on Tuesday as higher bond yields challenged bullion's status as an inflation hedge this year. Treasurys oversold There are many indicators like the correlation of the bond market and inflation, PMI manufacturing data as well as the copper/gold ratio suggesting yields have more room to go, Gundlach said. However, Treasury prices have entered oversold territory and are poised for a move higher for the time being, the investor said. Bond prices move in the opposite direction to yields. "I'd expect a modest or moderate decline in yields on the long-end ... It's pretty overextended sentiment-wise," Gundlach said. The benchmark 10-year Treasury yield has risen to above 1.5% from below 1% at the beginning of the year. The 30-year yield has climbed to 2.2% from about 1.6% at the end of 2020. The DoubleLine CEO said one of the reasons for the oversold conditions was the lack of purchase particularly from foreign buyers. He said the only marginal buyer of Treasurys in the past couple of years has been the Fed. VIX to hit 100? Gundlach also made a bold prediction on market volatility. He sees the Cboe Volatility Index , known as the VIX, to hit 100 in the next big market downturn. The Wall Street's fear gauge reached a record high of 82.69 in mid-March amid the pandemic-triggered sell-off, surpassing the peak level during the financial crisis.
