Gold Prices: LA Analyst Says This Could Send Gold Prices Soaring

Gold PricesGundlach: Gold Prices Could Hit $1,400

An L.A., California-based analyst, who last year correctly predicted that oil prices would plunge, is now predicting that gold prices could touch $1,400 an ounce.

Investors will seek safe haven in the yellow metal because they have no more faith in central banks, Jeffrey Gundlach, co-founder and CEO of DoubleLine Capital, said in a telephone interview with Reuters.

“The evidence that negative rates are harmful and not helpful has piled up to the point that the ‘In Central Banks We Trust’ mantra has finally been laid bare as a hoax,” he told the news agency.

Federal Reserve Chair Janet Yellen said at a Congressional hearing that negative rates are possible in the U.S.

Gundlach said negative rates are highly correlated with equities, particularly with banks and financials. Their stocks have come under severe selling pressure, as negative rates would hurt their balance sheets. (Source: “DoubleLine’s Gundlach: Gold to hit $1400 as investors lose faith in central banks,” Reuters, February 11, 2016.)

“The market is going to humiliate the Fed,” he said. “It’s bizarro to have rate hike projections while at the same time, Yellen is talking about negative rates. What a mess.”

Gold prices have rallied 14% since the beginning of the year. April gold settled at $1,208.20 an ounce on Tuesday. The S&P 500, meanwhile, is down eight percent this year.

Central banks cut rates to encourage people and businesses to spend their money and look around for other ways to make money. The Fed slashed interest rates to a historic low of almost zero percent in the midst of the financial crisis in 2008.

Implementing a negative rate means that everyone will actually be charged a penalty fee to hold money in a bank.

In a negative interest rate environment, most analysts agree, investors would be more prone to buy precious metals like gold because most other investments, including stocks, carry little to no yield during these market conditions.