Ray Dalio, the billionaire investor, is maintaining his position in gold as a precaution against the potential risks of increasing inflation and a looming debt crisis.
The Global Debt Situation
Dalio, the former CEO of Bridgewater Associates, has drawn attention to the mounting debt levels worldwide, particularly noting the record $34 trillion U.S. debt this year, as stated in a LinkedIn post. He also highlighted the debt challenges faced by countries such as China, Japan, and European nations, emphasizing the significant risks to their currencies.
“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,” Dalio wrote.
Insight into Central Bank Actions
Dalio further cautioned that when nations carry heavy debt burdens, central banks tend to resort to printing more money to settle the debt, resulting in currency devaluation, i.e., inflation. He explained that gold, being a form of money not backed by debt, serves as a valuable diversification asset against elevated debt levels.
Market Response and Performance
Gold has been experiencing a surge recently as investors seek refuge in the precious metal amidst concerns of a potential recession and persistent inflation. Dalio had previously alerted to a possible debt crisis in the U.S., which could initiate a balance sheet recession.
In the early months of 2024, global markets have witnessed significant volatility. Specific gold ETFs have demonstrated notable returns during this period. For example, ProShares Ultra Gold UGL has yielded a year-to-date return of 29.17%, while GraniteShares Gold Trust BAR and SPDR Gold Trust GLD have provided returns of 15.40% and 15.26% respectively, based on data from Benzinga Pro.
The Significance of Dalio’s Decision
Dalio’s choice to hold onto gold as a safeguard against inflation and debt crisis aligns with his earlier warnings about the global economic landscape. He had previously indicated in March that China might face a “lost decade” if it fails to address its debt challenges.
Despite the risks, Dalio remains optimistic about China’s stock market and suggests that the most favorable time to invest is when markets are deeply unpopular and undervalued, a scenario he observes in the current Chinese equity market.
Current Price Trends
Currently, the spot price for gold stands at $2,368.73 per ounce, reflecting a decrease of $23.20, or 0.97%. Meanwhile, gold futures for June 2024 are trading at $2,383.3, indicating a decline of $30.5, or 1.26%, according to data from Bloomberg.
This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.
