As opposed to what Trump claims about the US economy (SPY), Jeffrey Gundlach believes that weakness is evident in US economic indicators. On May 9, the Atlanta Federal Reserve forecasted a real GDP of 1.6% in Q2 for the US economy. However, on May 16, it further downgraded the forecast to 1.2% given the weaker-than-expected retail sales and industrial output data for April. During his webcast on May 14, Gundlach agreed that the Atlanta Fed figure can be volatile.
Gundlach also cited the Citigroup Economic Data Change Index, which has fallen to its lowest level since the financial crisis. This index measures data releases relative to their one-year history.
Probability of a recession
According to the indicators tracked by Gundlach, the probability of a recession in the next two years “would be extremely high.” In the next 12 months and the next six months, the likelihood is 50% and 30%, respectively.
Under these circumstances, Gundlach feels that the US stocks (DIA) and bonds (BND) are headed for a volatile environment. Thus, he is “comfortably” long on gold. Gundlach turned bullish on gold (GLD) in the middle of the last year at the $1,190 per ounce level. He also mentioned that gold prices are headed towards $1,300 per ounce. During an interview with Barrons in January 2019, he also suggested that to be aggressive, investors could buy the VanEck Vectors Gold Miners ETF (GDX), which is a leveraged play on GLD.