Dalio: Gold as a Hedge Against Mounting Debt Risks

Ray Dalio and the Gold Hedge in the Face of Rising Debt

Ray Dalio, the founder of hedge fund Bridgewater Associates, has cautioned that increasing levels of debt could create unhealthy markets. He suggested that gold could be a way to protect investors in such a scenario.

Dalio likens the current situation to plaque buildup in the circulatory system, warning that the United States, as it spends more money to service its debts, will lead to a "squeeze on other spending".

Speaking at Abu Dhabi Finance Week, Dalio explained that gold is not highly correlated with other assets, and its value often rises during times of crisis when other assets decline. For this reason, he recommends allocating 10-15% of an investment portfolio to gold.

Furthermore, Dalio spoke about the current global environment characterized by “debt abundance” and rising geopolitical tensions. He advised investors to consider an important question: “Whose money are you holding?” when constructing a neutral investment portfolio.

Comparing the Situation in Europe

Bill Winters, CEO of Standard Chartered, concurred with Dalio, noting that the situation in Europe is similar, although market valuations are not as high as in the US. He stated that “The UK and France are in a similar situation, but the market imposes tighter constraints on them than it does on the US.”

Market Performance

So far this year, the S&P 500 and Nasdaq indexes have risen more than 11% and 13% respectively, both closing at record highs on Wednesday, boosted by lower-than-expected inflation data supporting expectations that the US Federal Reserve will cut interest rates next week. In contrast, the pan-European Stoxx 600 index is up just over 8% so far in 2025.

Dalio's Previous Concerns

Previously, Dalio also pointed out that the United States is drifting towards a 1930s-style authoritarian regime, and that if the Federal Reserve were to be politically weakened and forced to maintain low interest rates, this would undermine confidence in the Fed's ability to defend the value of the currency, and make holding dollar-denominated debt assets less attractive, thereby weakening the monetary order.

Gold's Role in Portfolio Diversification

Beyond simply being a hedge against debt risk, gold has a history of acting as a safe haven asset during periods of economic uncertainty and geopolitical instability. Including gold in a diversified portfolio can potentially reduce overall portfolio volatility and improve risk-adjusted returns. However, investors should carefully consider their own risk tolerance and investment objectives before allocating capital to gold or any other asset class. It is important to remember that past performance is not indicative of future results.