Investors Should Put 5% to 10% of Their Assets in Gold Says Ray Dalio
Ray Dalio is going for gold. No, he’s not competing in the next Olympics. But, that next U.S. gold medal might be worth more. That’s because Dalio—founder, chairman, and co-chief investment officer of Bridgewater Associates, LP—thinks that current stock prices are unreasonably risky. In other words, Ray Dalio likes gold now because the stock market has become a treacherous forest with dangers lurking at every opportunity. Ray Dalio suggests that the increasing risks should prompt investors to put some five percent to ten percent of their holdings into gold.
Geopolitical risks are on the rise, and it may be a good idea to consider the opportunity to invest in gold, Dalio advised Bridgewater clients in a letter sent in early August. Bridgewater, based in Bridgeport, Connecticut, is the largest hedge fund management company in the world. It manages a total of around $160.0 billion in assets among the various investment strategies. (Source: “Risks Are Rising While Low Risks Are Discounted,” LinkedIn, August 10, 2017.)
Ray Dalio’s gold predictions should draw attention. After all, he’s making that recommendation to Bridgewater’s wealthy clients based on higher risks in the next few months. Volatility is increasing. But geopolitical risks, such as those related to the relationship between the U.S. and North Korea, are intensifying. Dalio suggests that the risks might be more political than economic, which makes the markets all the more volatile. Nobody can predict what Trump or, much less Kim Jong-un, might do. That compromises market stability.
Dalio Rarely Publicizes His Market Opinions. When He Does, It’s Time to Listen
Dalio rarely reveals his market opinions. This makes his gold recommendation all the more significant. Bridgewater’s chief investment officer is not alone. We have already seen that other markets and economic gurus have expressed concerns, which should encourage more diversification in gold. Yet, Ray Dalio’s economic predictions should have you even more worried. That’s because they come as the market remains on a seemingly unstoppable bullish course.
Indeed, the markets in 2017 have continued the trend of the past few years. Stock prices have increased, as Bridgewater is certainly aware; after all, Ray Dalio’s net worth is some $17.0 billion. But gold prices in 2017 have been a bit of a disappointing bag.
In April, after international tensions with Russia and Syria increased, gold touched the $1,300 mark. But after that, gold prices dropped to about $1,200 per ounce. Yet, the past few weeks have seen gold rebounding. It’s now hovering in the $1,290-per-ounce range. It seems ready to make the crossing into the $1,300-per-ounce territory. Should that happen, it could indicate a major reversal of market trends. Gold could reach much higher levels and stocks could collapse.
Ray Dalio isn’t a lone voice. Bill Gross of Janus Capital Group beat him to the punch. He’s been urging investors to realize the stock market has become too risky since two months ago. (Source: “Bill Gross says all financial markets are ‘increasingly at risk’,” CNBC, June 17, 2017.)
Dalio’s specific risk indications are that Trump and Kim Jong-un are playing chicken while Congress will likely prompt a shutdown of government by refusing to raise the debt ceiling, already at alarming levels.
As mentioned above, gold has had a lukewarm performance so far in 2017. But, it must be recognized that the precious metal did grow 12% in 2017. The falling dollar and persistently low inflation have discouraged the Federal Reserve’s willingness to lift interest rates. Dalio notes that as most of the S&P 500-listed companies are boasting market capitalizations of around three times the value of their assets, there is the risk of a bubble. Or rather, the risk is that the bubble might burst.
Meanwhile, Federal Reserve Chair Janet Yellen may have started to question her interest rate hike policy. She is unsure whether or not to continue in the announced rise in rates. She can keep fueling the habit and avoid bursting the bubble. Or, she could wait and see and let the markets burst by themselves.
Raising rates could lead to the breakdown of the vicious circle. This makes the case for getting into gold stronger. If a market correction occurs, it would also blow the new credit crisis. The crisis might not result from mortgages. Rather, it would result from indebtedness in the form of car and student loans. Gold prices in 2017 seem inevitably destined to go up.