- Ray Dalio says he owns gold in part to protect against debt and inflation risks.
- The legendary hedge fund founder has issued a new warning about rising debt balances around the world.
- He warned investors of a U.S. debt crisis, which could plunge the economy into a recession.
Ray Dalio holds on to gold as a buffer against the risks of higher inflation and a potential debt crisis hit the economy.
The billionaire investor and former CEO of Bridgewater Associates highlighted rising debt balances around the world, with the US debt reaches $34 trillion for the first time this year. Debt problems have also hit China, Japan and European countries – posing a significant risk to these countries' currencies, he wrote in a post on LinkedIn this week.
“History and logic show that when there are great risks that debts will 1) not be repaid or 2) be repaid with money of depreciated value, both debt and money become unattractive,” wrote Dalio on Thursday.
When countries are heavily indebted, central banks are likely to print more cash to service the debt, he noted, which is in itself a problem.
“This prevents a large reduction in debt from occurring by devaluing the currency (i.e. inflation),” Dalio warned. “Gold, on the other hand, is a form of money not backed by debt. It is like cash, except that unlike cash and bonds, which are devalued by the risks of default or inflation, gold gold is supported by default and inflation risks.
This is the main reason why Dalio says it has gold in its own investment portfolio, he added, calling it “good diversification” amid high debt levels.
The gold is there a record race these last weeks. Investors have been eager to buy the precious metal amid looming risk of recession and inflation remaining stuck at high levels, as well as fears of broader geopolitical unrest in the Middle East.
Dalio has already sounded the alarm on the balance of the American debt. Previously, he had warned the markets of a Debt crisiswhich could end up triggering a balance sheet recession – a downturn that occurs when people and businesses spend money paying off debts instead of stimulating the economy.