TLDR
- Bridgewater Associates founder Ray Dalio says global monetary system is breaking down at World Economic Forum
- Gold hit record high of $2,689.39 on Tuesday, beat all major markets in 2024 including technology stocks
- Dalio warns countries may stop buying US debt and Treasury bonds as trust erodes between nations
- The hedge fund billionaire recommends investors hold 5-15% of portfolios in gold for protection
- US continues issuing massive debt volumes while foreign holders grow concerned about dollar holdings
Billionaire investor Ray Dalio delivered a stark message about the world financial system this week. Speaking at the World Economic Forum in Davos, the hedge fund manager said the monetary order is collapsing.
Dalio told CNBC that central banks are changing their approach to fiat currencies. The shift represents a break from historical patterns.
“Fiat currencies and debt as a storehold of wealth is not being held by central banks in the same way,” Dalio said. He pointed to a fundamental change in behavior.
Gold emerged as the top performing market in 2024. The precious metal beat technology stocks and other major asset classes.
On Tuesday, gold prices reached an all-time high of $2,689.39 per ounce. Investors rushed to safe-haven assets as global tensions increased.
Capital Wars Could Follow Trade Conflicts
The Bridgewater Associates founder warned of potential “capital wars” emerging from trade disputes. Countries holding US dollars and Treasury bonds may reduce their appetite for American debt.
“On the other side of trade deficits and trade wars, there are capital and capital wars,” Dalio explained. He said countries may lose their inclination to buy US debt.
The United States continues to issue large amounts of debt. Dalio called this a problematic situation when combined with weakening confidence.
Both holders of US dollar-denominated assets and the United States are worried about each other. This mutual concern creates major issues for the financial system.
Treasury bond prices dropped on Tuesday. Investors reacted to fresh tariff threats from President Donald Trump targeting European nations.
Trump threatened new tariffs on countries opposing his statements about Greenland. The president questioned Denmark’s ownership rights to the Danish territory.
Historical Patterns Show Risk
Dalio referenced historical examples of economic conflicts spreading beyond trade. These disputes often escalate to capital flows and currency problems.
“When you have conflicts, international geopolitical conflicts, even allies do not want to hold each other’s debt,” he said. Nations prefer moving to hard currencies during times of tension.
The pattern has repeated throughout world history. Dalio said the current situation follows logical and factual precedents.
Portfolio Strategy for Uncertain Times
The billionaire investor emphasized diversification as a key strategy. He warned against relying too heavily on any single asset class or country.
Dalio recommends allocating between 5% and 15% of investment portfolios to gold. He described the precious metal as an effective diversifier during financial stress.
“It does very well when other assets don’t do well,” Dalio said about gold’s protective qualities. The metal serves as a hedge when other investments struggle.
Crypto industry leaders also attended the Davos meetings this week. Coinbase CEO Brian Armstrong said he would discuss blockchain technology with world leaders.
Armstrong plans to address how cryptocurrency can modernize financial systems. He also intends to talk about pending digital asset legislation with banking executives.
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