“Golden Standard” Dalio Ups the Ante: Gold is the Only “Timeless, Universal” Currency Not Dependent on Others

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Yesterday

Bridgewater Associates founder Ray Dalio has reiterated his bullish stance on gold, asserting that gold, as a “timeless and universal” form of currency, is the only asset that does not rely on counterparties’ credit. He emphasizes that in the current financial environment, the strategic value of gold as a core asset is increasingly significant.

On Friday, October 17, Dalio noted that, with gold prices continuing to surge, gold has started to replace some U.S. Treasuries in investment portfolios, becoming a risk-free asset for investors. This latest assertion elevates his optimism for gold to new heights, reflecting a reassessment of traditional safe-haven assets.

Even as gold reached historic highs this week, Dalio previously suggested at an economic forum in Greenwich, Connecticut, that investors should allocate up to 15% of their portfolios to gold. He stated, “Gold is an excellent diversification tool,” as it often performs well when other parts of traditional portfolios decline.

To more systematically articulate his views, Dalio later opened a forum on social media platform X for questions regarding gold investment, providing detailed answers. This series of in-depth analyses offers a direct glimpse into how this investment giant perceives gold's role in today's world.

Gold as Currency, Not Metal Dalio believes that understanding the value of gold requires a shift in thinking. He pointed out that most people mistakenly view gold as merely a metal while regarding fiat currency as true money.

In his perspective, gold is the foundational form of currency, while fiat currency is fundamentally debt. He explains that almost every country in history has experienced a “debt-gold-currency” cycle. When debts become unpayable and fiat currencies are printed excessively to avoid default, the value of gold, which cannot be created out of thin air, becomes apparent.

From this viewpoint, gold functions similarly to cash; it can be used directly for settling transactions and repaying debt, unlike credit which creates new liabilities. Dalio expressed that the value of debt currency is diminishing relative to gold currency, a trend he views as already evident.

He identifies that in situations where bubbles may burst or inter-country credit systems fail (such as in wartime), gold serves as an excellent diversification complement to stocks and bonds.

Gold as the Second Major Currency Dalio explicitly answered the question of whether gold has started to replace U.S. Treasuries as a risk-free asset: "The factual answer is yes." Gold has begun to assume the status of risk-free assets in many portfolios, especially among central banks and large institutional investors, who have reduced their holdings of U.S. Treasuries while increasing their positions in gold.

From a historical perspective, Dalio asserts that gold is “less risky” than any sovereign debt. He explains that the greatest risks associated with debt assets like U.S. Treasuries are defaults or, more likely, devaluation through rampant money printing. Historical data shows that approximately 80% of global currencies have vanished since 1750, and the remaining 20% have all been severely devalued.

"History teaches us that the greatest risk is that debt assets like U.S. Treasuries either default or devalue, with devaluation being the more likely scenario."

Throughout history and in the present, debt assets are commitments where debtors deliver currency to creditors. When debt levels exceed the capacity to repay with existing currency, central banks print money to settle debts, leading to currency devaluation.

In contrast, the value of gold does not rely on any counterparty’s repayment promise. It is an asset with intrinsic value. Dalio summarizes:

“Gold is the only asset that you can hold without relying on someone else to pay you,” defining it as a “timeless and universal currency.”

Why Gold and Not Other Alternatives? Among the various assets that can hedge risks, Dalio elaborates on gold's unique irreplaceability.

Compared to other precious metals: While silver and platinum also possess inflation-hedging attributes, they lack the historical and cultural standing globally accepted by investors and central banks that gold enjoys. Silver is more influenced by industrial demand and is more volatile in price; platinum faces limitations due to its specific industrial applications and supply constraints. Consequently, the general acceptance and stability of these metals in wealth preservation do not match that of gold.

Compared to Treasury Inflation-Protected Securities (TIPS): Although Dalio considers TIPS to be undervalued hedging instruments in normal times, their fundamental nature remains that of government debt. This means their performance is contingent on the credit quality of the issuing government during significant debt crises.

Moreover, these bonds also risk government manipulation of official inflation data. In systemic financial crises or severe economic downturns, they cannot offer the safety net that gold provides.

Compared to equities (like AI stocks): Dalio acknowledges the high return potential of stocks in fast-growing sectors like artificial intelligence but warns of their bubble risk. He highlights that historically, tech breakthrough companies have experienced similar frenzies. Currently, the boom in AI stocks contributes significantly to market and economic growth, but also leads to concentrated risks. If their performance fails to meet expectations, it could severely impact the market and economy. This reasoning leads him to advocate for prudent diversification.

Tactical Allocation Advice: 15% Gold Position and Leverage Strategy When posed with the question of whether to buy given the rise in gold prices, Dalio emphasized the need to think from a strategic asset allocation perspective rather than a tactical betting standpoint.

He contended that every investor should address a fundamental question: How much gold should one hold when market direction is unpredictable? Based on its historical negative correlation with stocks and bonds (particularly during poor real returns), Dalio suggests roughly 15%.

He analyzes that this proportion brings about the best "risk-return ratio" for investment portfolios. While gold has a relatively low long-term expected return like cash, it tends to perform remarkably well “when it is needed the most.”

To optimize risk without sacrificing expected returns, he recommends holding gold positions through portfolio overlays or overall leveraging strategies.

Dalio also noted that while the rise of gold ETFs has enhanced market liquidity and transparency, their market size remains dwarfed by physical gold investments or central bank holdings, indicating that they are not the primary driver behind the current rise in gold prices.

He further speculated that if individuals, institutional investors, and central banks allocate appropriate proportions of assets to gold for diversification purposes—given its extremely limited supply—gold prices “will have to be much higher.”

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

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