Billionaire investor Ray Dalio is turning to gold as a strategic hedge against the twin threats of surging inflation and a looming debt crisis. In a recent LinkedIn post, the former CEO of Bridgewater Associates highlighted the alarming rise in global debt levels, including a record $34 trillion debt pile in the U.S. This situation, according to Dalio, poses significant risks to the stability of major world currencies and could lead to economic instability in not just the U.S. but also China, Japan, and European countries.
Dalio argues that history and logic both suggest that when nations face insurmountable debt, they often choose between defaulting or inflating their way out of obligations. “History and logic show that when there are big risks that the debts will either 1) not be paid back or 2) be paid back with money of depreciated value, the debt and the money become unattractive,” he noted. This backdrop makes traditional cash and bonds less appealing, as their value is eroded by the risk of default or inflation.
On the other hand, gold stands out as a robust alternative. Unlike fiat currencies and bonds, gold is not backed by debt and thus maintains its value in scenarios where currency values are debased. “Gold, on the other hand, is a non-debt-backed form of money. It’s like cash, except unlike cash and bonds, which are devalued by risks of default or inflation, gold is supported by risks of debt defaults and inflation,” Dalio explained.
This perspective on gold’s resilience makes it an integral part of Dalio’s diversified investment portfolio, particularly in a climate of high debt levels. The appeal of gold has been further amplified by recent record-setting price increases, driven by investor fears around a potential recession and persistent high inflation, as well as geopolitical tensions in the Middle East.
Dalio’s focus on gold is intertwined with his broader economic outlook. He has previously issued warnings about the potential for a significant debt crisis, suggesting that such a scenario could trigger a balance sheet recession—a downturn characterized by debt repayment taking precedence over economic stimulation.
In sum, Dalio’s stance on gold underscores his broader economic concerns and offers a strategic playbook for investors navigating an era of financial uncertainty marked by high debt and inflation. His advocacy for gold reflects a precautionary approach to wealth preservation in turbulent times.