• Ray Dalio says he owns gold partly to hedge in opposition to debt and inflation dangers.
  • The legendary hedge fund founder forged one other warning on rising debt balances all over the world.
  • He is warned traders of a US debt disaster, which may push the financial system right into a stability sheet recession.

Ray Dalio is holding onto gold as a buffer in opposition to dangers stemming from greater inflation and a potential debt disaster hitting the financial system.

The billionaire investor and former Bridgewater Associates CEO has pointed to mounting debt balances all over the world, with the US debt notching $34 trillion for the primary time ever this 12 months. Debt issues have additionally plagued China, Japan, and European nations — which poses an enormous threat for the currencies in these nations, he wrote in a submit on LinkedIn this week.

“Historical past and logic present that when there are massive dangers that the money owed will both 1) not be paid again or 2) be paid again with cash of depreciated worth, the debt and the cash grow to be unattractive,” Dalio wrote on Thursday.

When nations are deeply indebted, central banks are prone to print out additional cash to repay the debt, he famous, which is itself an issue.

“This prevents an enormous debt squeeze from taking place by devaluing the cash (i.e., inflation),” Dalio warned. “Gold, alternatively, is a non-debt-backed type of cash. It is like money, besides not like money and bonds, that are devalued by dangers of default or inflation, gold is supported by dangers of debt defaults and inflation.”

That is the primary cause Dalio says he has gold in his personal funding portfolio, he added, calling it a “good diversifier” in opposition to the backdrop of excessive debt ranges. 

Gold has been on a record-setting run in latest weeks. Buyers have been eager to purchase the dear metallic amid the looming threat of recession and inflation remaining caught at elevated ranges, in addition to fears of wider geopolitical turmoil out of the Center East. 

Dalio has sounded the alarm on the US debt stability earlier than. Beforehand, he warned markets of a coming debt disaster, which may find yourself sparking a stability sheet recession — a downturn that happens when individuals and corporations spend cash to repay their money owed as an alternative of stimulating the financial system.