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Buy Gold as Markets Face a Paradigm Shift Says Ray Dalio

Kitco News

(Kitco News) - The global economy is on the cusp of a paradigm shift but investors are underweight assets like gold to protect against the growing risks in the marketplace, warns billionaire investor Ray Dalio.

In a LinkedIn post Wednesday, Dalio, co-chief investment officer and co-chairman of Bridgewater Associates, said that gold will continue to shine as loose central bank monetary policy and rising global debt devalue currencies around the world.

The global market is swimming in negative bond yields, valued at $13 trillion; however, Dalio noted that investors aren’t focusing on long-term income as their investments remains profitable as central banks continue to lower interest rates. He added that this trend won’t last forever.

“While I’m not sure exactly when or how the paradigm shift will occur, I will share my thoughts about it. I think that it is highly likely that sometime in the next few years, 1) central banks will run out of stimulant to boost the markets and the economy when the economy is weak, and 2) there will be an enormous amount of debt and non-debt liabilities (e.g., pension and healthcare) that will increasingly be coming due and won’t be able to be funded with assets,” he said.

Dalio added that right now investors holding zero or negative debt are sacrificing long-term income for short-term profits.

“While there is still a little room left for stimulation to produce a bit more of this present value effect and a bit more of shrinking risk premiums, there’s not much,” he said.

At the same time the low/negative rate environment will exacerbate growing debt problems said Dalio.

“The enormous amounts of money in no- and low-returning investments won’t be nearly enough to fund the liabilities, even though the pile looks like a lot. That is because they don’t provide adequate income. In fact, most of them won’t provide any income, so they are worthless for that purpose. They just provide a ‘safe’ place to store principal,” he said.

Dalio added that in this environment the question will be: what global asset or currency will investors want to hold.

“Most people now believe the best ‘risky investments’ will continue to be equity and equity-like investments, such as leveraged private equity, leveraged real estate, and venture capital, and this is especially true when central banks are reflating,” he said. “I think these are unlikely to be good real returning investments and that those that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold.

“For reasons I will explain in the near future, most investors are underweighted in such assets, meaning that if they just wanted to have a better balanced portfolio to reduce risk, they would have more of this sort of asset. For this reason, I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio,” he added.

Dalio’s view on gold is not surprising as he has been bullish on the yellow metal for nearly two years. In August 2017 he wrote another LinkedIn post recommending investors hold 5% to 10% of their portfolio in gold.

Dalio has also been following through with his bullish views as Bridgewater increased its exposure to gold in the second quarter according to a SEC filings report in May.

Gold prices have rallied significantly in the last two months, pushing past $1,400 an ounce as markets started to price in aggressively loose monetary policy action from the Federal Reserve.

The CME FedWatch Tool shows markets see at least a 25 basis point cut by the end of the month. Markets expect to see at least three rate cuts by the end of the year. August gold futures last traded at $1,427.20 an ounce, up more than 1% on the day.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.