The investing world is usually divided into stock and bond investors and those who look at foreign exchange and commodities such as gold. Usually those two worlds do not collide. So, it’s a big deal when someone in the stock and bond world crosses over to take a look at gold.

That’s what just happened. Legendary investor and bond guru Jeffrey Gundlach of DoubleLine Capital, which manages over $119 billion, has identified higher inflation as one of the major risks facing investors.

Inflation can cause stock prices to rise at first, but over time stocks decline because inflation destroys capital formation by distorting price signals. Inflation is obviously bad for bonds because interest rates rise to keep up with the inflation, which causes capital losses on existing portfolios of lower coupon bonds. Of course, the big winner in an inflation scenario is gold.

That’s exactly what Gundlach expects, according to this article. Gundlach took a look at gold prices recently and said, “It’s getting almost exciting… something big is happening.” If big investors like Gundlach start reallocating even a small part of their portfolios away from stocks or bonds toward gold, there’s not nearly enough physical gold to meet demand at current prices.

This might be a good entry point for gold investors before big portfolio managers jump on the gold bandwagon.

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