"Gold Standard" Dalio "Increases Firepower": Gold is the only "Eternal, Universal" currency that "does not rely on others"

Ray Dalio, the founder of Bridgewater Associates, has once again reinforced his bullish stance on gold, believing that gold, as a "timeless and universal" form of currency, is the only asset that does not rely on counterparty credit. In the current financial environment, its strategic value as a core asset is becoming increasingly prominent.

Dalio pointed out on Friday (October 17) that as gold prices continue to soar, gold has begun to replace a portion of U.S. Treasury bonds in investment portfolios, becoming a risk-free asset for investors. This latest assertion elevates his optimism about gold to new heights, marking a reevaluation of his views on traditional safe-haven assets.

Prior to this, even though gold prices had reached a historic high this week, Dalio still 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 tool for portfolio diversification," as it often performs well when other parts of a traditional portfolio decline.

To systematically elaborate on his views, Dalio subsequently publicly solicited questions about gold investment on the social platform X and provided detailed answers. This series of in-depth analyses offers the market the most direct insight into how this investment giant views the role of gold in today's world.

Gold is Currency, Not Metal

Dalio believes that the key to understanding the value of gold lies in a shift in mindset. He points out that most people mistakenly view gold as a metal and fiat currency as real money.

However, in his view, gold is the most fundamental form of currency, while fiat currency is essentially debt.

He explains that throughout history, nearly all countries have gone through a "debt-gold-currency" cycle. When debts cannot be repaid and fiat currency is printed in large quantities to avoid default, the value of gold, which cannot be created out of thin air as "non-fiat currency," becomes evident.

From this perspective, gold functions similarly to cash; it can be used directly for settling transactions and repaying debts without creating new debt like credit does.

Dalio states that the value of debt currency relative to gold currency is declining, a trend that has long been apparent to him.

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

Gold has Become the Second Largest Currency

Dalio clearly answered the question of whether gold has begun to replace U.S. Treasury bonds as a risk-free asset: "The factual answer is yes."

Gold has started to replace a portion of U.S. Treasury bonds' risk-free asset status in many investment portfolios, particularly among central banks and large institutional investors. These portfolio holders have reduced their holdings of U.S. Treasury bonds while relatively increasing their gold positions From a long historical perspective, Dalio believes that gold is "less risky" than any sovereign debt.

He explained that the biggest risk of debt assets like U.S. Treasury bonds is default, or more likely, being "devalued" through money printing. Historical data shows that since 1750, about 80% of global currencies have disappeared, and the remaining 20% have also been severely devalued.

"History tells us that the biggest risk is that debt assets like U.S. Treasury bonds either default or devalue, and devaluation is more likely."

Historically and currently, debt assets are promises from debtors to creditors to deliver currency. When debt becomes too excessive to be repaid with existing currency, central banks print money to repay, leading to currency devaluation.

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

"Gold is the only asset you can hold without relying on someone else to pay you," and it is a "timeless and universal currency."

Why Gold, and Not Other Alternatives?

Among the many assets that can hedge risks, Dalio explained why gold has an irreplaceable uniqueness.

Compared to other precious metals: While silver, platinum, and others also have inflation-hedging properties, they lack the historical and cultural status that gold has, which is widely accepted by global investors and central banks.

Silver is more affected by industrial demand and has higher price volatility; platinum is more restricted due to limited supply and specific industrial uses. Therefore, the general acceptance and stability of these two metals in wealth preservation are not as good as gold.

Compared to Treasury Inflation-Protected Securities (TIPS): Although Dalio believes that TIPS are an undervalued hedging tool in normal times, their fundamental nature is still government debt.

This means that during a major debt crisis, their performance is closely related to the creditworthiness of the issuing government.

Additionally, these bonds may face risks such as government manipulation of official inflation data. In systemic financial crises or severe economic difficulties, they cannot provide the safety net that gold can.

Compared to stocks (such as AI concept stocks): Dalio acknowledges that stocks in high-growth areas like artificial intelligence have high return potential, but he also warns of bubble risks.

He pointed out that historically, breakthrough technology 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 falls short of expectations, it could have severe repercussions for the market and the economy. Therefore, he believes that prudent diversification is a wise move.

Tactical Allocation Suggestion: 15% Gold Position and Leverage Strategy

In response to the question of "the gold price has risen, should I still buy," Dalio emphasized that one should think from the perspective of strategic asset allocation rather than tactical bets.

He believes that every investor should answer a fundamental question: how much gold should one hold when the market direction is unpredictable?

Based on its historical negative correlation with assets like stocks and bonds (especially when stock and bond real returns are poor), Dalio's answer is about 15%. He analyzed that this ratio can bring the best "return-risk ratio" to the investment portfolio. Although gold has a low long-term expected return rate like cash, it performs exceptionally well "when it is most needed."

To optimize risk without sacrificing expected returns, he suggests holding gold positions through portfolio overlay or overall leverage.

Dalio also pointed out that while the rise of gold ETFs has increased market liquidity and transparency, their market size is far smaller than physical gold investments or central bank holdings, and is not the main reason for the current rise in gold prices.

He further inferred that if individuals, institutional investors, and central banks allocate an appropriate proportion of assets to gold for diversification purposes, given its extremely limited supply, gold prices "will have to be much higher."