Gandalf says Bilbo is as fierce as a dragon in a pinch. Why does Gandalf say this?

In The Hobbit by J.R.R. Tolkien, Gandalf the wizard recruits Bilbo Baggins to join the company of Thorin Oakenshield and his band of dwarves in their quest to win back the Lonely Mountain and its hoard of treasure from the fearsome dragon Smaug. When Bilbo has a fit of fear after he hears of the danger involved, Gandalf assures the dwarves that he is "one of the best—as fierce as a dragon in a pinch." Gandalf says this for two reasons, both of which have to do with his responsibilities and abilities as a wizard.
First of all, as is brought out in The Hobbit and also in The Lord of the Rings, Gandalf studies the history of Middle Earth and has a great deal of knowledge about its peoples. He bases his assessment of Bilbo's abilities partly on how hobbits have reacted to danger and enemies in the past. For instance, Tolkien brings up the example of the Old Took's great granduncle Bullroarer, who lopped off the head of a goblin king in the Battle of the Green Fields. This propensity of hobbits to defend themselves well when they are in danger is brought out more clearly in the section called "On Hobbits" at the beginning of The Fellowship of the Ring:

Nevertheless, ease and peace had left this people still curiously tough.
Though slow to quarrel, and for sport killing nothing that lived, they were doughty at bay, and at need could still handle arms. They shot well with the bow, for they were keen-eyed and sure at the mark.

Besides the knowledge that Gandalf has of hobbits in general, as a wizard, he is also prescient and a keen judge of character. As he tells the dwarves,

If I say he is a burglar, a burglar he is, or will be when the time comes. There is a lot more in him than you guess, and a deal more than he has any idea of himself.