Ray Dalio, founder of the world’s largest hedge fund by assets under management, says gold is poised to be a top investment, as the era of low interest rates and quantitative easing comes to an end.
The billionaire investor believes “that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio” as central banks get more hawkish with policies that devalue currencies and are likely to cause a “paradigm shift” in investing.
The Bridgewater CEO wrote in a 6000-word LinkedIn post that investors have been driven into stocks and other assets that have equity-like returns. As a result, too many people are holding these types of securities and are therefore likely to face diminishing returns.
The investments offering the best returns "will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold," Dalio, an extremely well-respected in the investment community, writes.
“Additionally, for reasons I will explain in the near future, most investors are underweighted in such assets, meaning that if they just wanted to have a better balanced portfolio to reduce risk, they would have more of this sort of asset ”the Bridgewater Associates leader said.
As might be expected, the price of gold jumped higher after Dalio’s publishing of the post, up 0.7% to around $1,421 an ounce.
For Dalio, storing one's money in cash and bonds will no longer be safe in the future when market conditions could see escalating conflict between capitalists and socialists.
"The big question worth pondering at this time is which investments will perform well in a reflationary environment accompanied by large liabilities coming due and with significant internal conflict between capitalists and socialists, as well as external conflicts."
This is not the first time the investment guru proves he is a firm believer in the yellow metal as a safe-haven asset.
In 2012 in an interview to CNBC he basically said gold should be owned by by everyone.
“We have a situation now where when you have too much debt. Too much debt leads to printing of money to make it easier to service,” Dalio said. “So all of those things mean that some portion [of an investment portfolio] should be in gold.”
In August 2017, he wrote in a LinkedIn post: “If you don’t have 5-10% of your assets in gold as a hedge, we’d suggest that you relook at this. Don’t let traditional biases, rather than an excellent analysis, stand in the way of you doing this.”
Gold hasn’t lost its sheen
Bridgewater Associates didn’t have any major positions in gold ETFs until the second quarter of 2017. By the end of the third quarter of 2017, SPDR Gold Shares (GLD) formed 3.18% of the fund’s portfolio.
Gold continues to shine for the Wall Street fund. At the end of the first three months of this year, GLD and iShares Gold Trust ETF (IAU) formed 3.01% and 0.88% of Bridgewater Associates' holdings.
The fund increased its holdings in SPDR Gold Shares (GLD) from 3.91 million shares in the fourth quarter of 2018 to 4.03 million shares, valued at more than $491 million. The hedge fund also raised its holdings in iShares Gold Trust ETF (IAU) from 11.3 million shares to 11.6 million shares.
(Graph Source: WGC)
Like many precious metal investors, Dalio turns to gold for diversification and as a hedge against inflation as the yellow metal is particularly well-suited for diversification and hedging, since it tends to move independently of paper assets. With rising inflation, gold typically appreciates.
Gold has historically served as an investment that can add a diversifying component to one's portfolio, reducing the overall risk and protect the portfolio during times when stocks and bonds may take a hit.
As history is full of collapsing empires, currencies and political coups investors who held gold were able to successfully protect their wealth and, in some cases, even use the commodity to escape from all of the turmoil.
In 2018, central banks added 651.5 tonnes to their holdings, a 74% increase from the previous year, according to the World Gold Council (WGC). The financial institutions are expected to acquire an additional 600 tonnes of the precious metal this year, according to the consulting firm Metals Focus.
Meanwhile, the WGC believes that over the next six to twelve months financial market uncertainty and accommodative monetary policy will likely support gold investment demand.
Are banks stocking up on gold only to diversify, or possibly to prepare for the next downturn? With political and economic uncertainty being a reality of our modern economic environment, Dalio's latest post came as no surprise, giving some investors one more reason to flee to gold.