Bill Gross says gold is now a ‘momentum/meme asset’ — and if you really want to buy it, you should wait awhile

Legendary bond investor Bill Gross cautions against buying gold, deeming its recent surge overextended and a "momentum/meme asset," despite its significant year-to-date gains. He also highlights ongoing concerns about regional bank loan books, predicting continued impacts on stocks and bonds, and asserts that the 10-year Treasury yield is unsustainably low, expecting it to surge above 4.5% due to persistent budget deficits and an impending economic slowdown to 1% growth.

Analysis

Legendary investor Bill Gross expresses significant concern over the U.S. fiscal trajectory, predicting the 10-year Treasury yield will surge "well above" Friday's 4.01% close, potentially reaching 4.5%. This forecast is driven by anticipated substantial government debt issuance to cover budget shortfalls and an expected sharp economic slowdown to 1% growth from current estimates exceeding 3%. He views the recent dip below 4% as "overblown," asserting that too much supply and deficits outweigh slowing economic conditions.

Gross also highlights persistent risks within the regional banking sector, warning that "cockroaches" in loan books could continue to impact both stocks and bonds. This follows recent disclosures from Zions Bancorporation and Western Alliance Bancorp regarding "dodgy borrowers," echoing JPMorgan CEO Jamie Dimon's earlier concerns. While analysts do not foresee systemic issues, the memory of Silicon Valley Bank's collapse two years prior briefly triggered market turbulence and a drop in the 10-year Treasury yield.

Despite gold's impressive year-to-date surge of over 50% and doubling since early 2024, Gross urges caution, labeling it a "momentum/meme asset" after prices fell over 2% on Friday from a record high above $4,300. This sentiment is echoed by Capital Economics, which notes "FOMO" influencing the gold trade, making objective valuation difficult. The metal's rally is partly attributed to a "debasement trade" fueled by soaring global debt and expectations of governments allowing higher inflation.

Key Decisions for Investors

• Investors should re-evaluate fixed income duration exposure, considering strategies that benefit from or protect against rising 10-year Treasury yields, given Bill Gross's forecast for a surge above 4.5% due to fiscal deficits and slowing growth.
• Exercise caution on new or existing gold positions, as Bill Gross views its recent surge as overextended and driven by "FOMO," suggesting a potential pullback before further accumulation.
• Maintain vigilance on regional bank credit quality and loan book health, as concerns from Gross and recent disclosures suggest potential continued volatility and impact on sector-specific investments.
• Prepare for a challenging macro environment characterized by slowing economic growth and persistent fiscal deficits, which could necessitate a more defensive portfolio allocation or a focus on resilient sectors.