Summary: Bill Gross, in his monthly outlook, notes that in the current challenging environment, investors are better off with gold and real assets. Gross joins the likes of Gundlach, Soros, Druckenmiller, David Einhorn who have turned to gold, shunning equities.

King of Bonds, Bill Gross arrived late for the Gold party. In an interview with CNBC earlier this week, the manager at Janus Capital said that he doesn't like bonds anymore shifting his focus to physical assets such as gold and government guaranteed funds. Gross’ comments go opposite to the general rule of “don’t fight the Fed” and signals that the market distortion and imbalances have left investors to an investor in real assets.

According to Gross, the current market conditions where interest rates are low and sovereign debt growing to over $11 trillion and carrying negative yields, he said that the market environment was challenging to investors.

"If we see fiscal stimulation in Japan China and ultimately the U.S. after the election, I think we should be investing in real assets as opposed to financial assets," Gross told CNBC.

In his monthly outlook, Gross makes a few interesting points, which explain his new found affinity for Gold.

"Low-interest rates may raise asset prices, but they destroy savings and liability based business models in the process," Gross says. He further adds that if low-interest rates were maintained for too long, the real economy could be affected as expected income fails to materialize, and investment spending stagnates. On the $180 billion in monthly QE by central banks, namely the ECB, BoJ and the BoE, Gross says that it can keep on going, either in pushing out the maturities further or by rolling over the debt.

For investors, in the current scenario, Gross says "I don’t like bonds; I don’t like most stocks; I don’t like private equity. Real assets such as land, gold, and tangible plant and equipment at a discount are favored asset categories."

Soros, Druckenmiller, Gundlach and now Gross

Bill Gross joins the ranks of other big names including George Soros. Soros had in May this year liquidated around 37% of long stock exposure and said that he bought a lot more gold. Backing Soros was also his former chief strategist, Stan Druckenmiller. Earlier this year, at the Sohn Investment Conference in New York, Druckenmiller said that the bull market in equities was wearing itself off. He said that gold was his largest currency allocation calling central bankers experiments with negative interest rates an "absurd notion."

Gundlach, one of the early backers of gold said "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," and made a bullish call that gold prices could reach to $1400 an ounce.

Since the developments in May, the US S&P 500 via the E-Mini S&P futures has rallied over 3.0%, while during the same period, Gold prices, measured via Comex Gold futures has rallied over 12% as of 3 August 2016.

Gold Futures vs. S&P e-mini futures

In the same period, the central banks were seen holding policy steady, with the exception of the Bank of Japan and more recently the Bank of England, for of course two very different reasons. One still chasing the 2% inflation target, while the other providing a cushion for the economy’s soft landing into recession. The markets continue to dissect every word coming out of FOMC (voting) members.

While the Fed has passed on the baton to the September meeting, the markets are still very much unconvinced. The Fed funds probability for a September rate hike stands at 11%, one week after the Fed’s last meeting on July 27^th with the conviction that there may be just one more rate hike in December, but that ‘maybe’ does come with a lot of doubts. With the preliminary GDP results for Q2 showing a 1.20% growth and diminishing prospects for a hawkish Fed, it is probably only a matter of time before the bubble bursts.