DoubleLine's Gundlach: Gold to hit $1400 as investors lose faith in central banks

Jeffrey Gundlach, chief executive officer of DoubleLine Capital, speaks during the Sohn Investment Conference in New York May 4, 2015. REUTERS/Brendan McDermid

NEW YORK (Reuters) - Jeffrey Gundlach, the co-founder and chief executive officer of DoubleLine Capital, said on Thursday that gold prices are likely to reach $1400 an ounce as investors lose faith in central banks.

“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,” Gundlach said.

Federal Reserve Chair Janet Yellen suggested the U.S. central bank could turn to negative interest rates in an economic downturn despite legal and other uncertainties. Central banks in Europe and Japan have turned to the once-radical idea of negative interest rates to spur their moribund economies.

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.

“What’s scaring people is the ‘12 rate hikes in three years’ in the dots. When are they going to change the dots? They are still there,” Gundlach said about the Fed’s dot plot.

Fed officials publish their forecasts for the central bank’s key interest rate moves on a chart known as the dot plot.

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

Last year, Gundlach correctly predicted that oil prices would plunge, junk bonds would live up to their name and China’s slowing economy would pressure emerging markets. In 2014, Gundlach correctly also forecast U.S. Treasury yields would fall, not rise as many others had expected.

“The Fed raising rates in this environment is unthinkable,” Gundlach said. Gundlach also told Reuters that he purchased more Puerto Rico general obligation bonds at around 70 cents on the dollar. He added: “You make money on the short side. The market is moving too fast for the Fed to keep up.”

Reporting By Jennifer Ablan; Editing by Meredith Mazzilli, Diane Craft