In 1975, Harvard Business School graduate Ray Dalio founded the hedge fund Bridgewater Associates. Since then, the fund has given its investors the second-best returns in hedge fund history and has made Dalio a billionaire several times over. In 2023, Bridgewater Associates managed a total of more than $123 billion (approximately €115 billion) in assets.
This is also why Dalio's words are so important in the financial industry. Dalio has now published a post on LinkedIn in which he explains why he considers the current global economic situation risky and why gold is a sensible investment.
Ultimately, every currency is collateralized by debt.
The most commonly accepted and held currencies include the US dollar, euro, Japanese yen and Chinese renminbi, Dalio writes. What all of these currencies have in common is that they are ultimately “debt-secured currencies.”
Whoever buys a coin acquires the promise of receiving money. In this case, the debtor is the respective State.
However, in times when countries are heavily indebted, their risk of default increases. To avoid a cut, they typically made their respective central banks print more money, which in turn led to its devaluation (inflation).
Gold has the same advantages as currencies, but benefits from inflation
Precisely this is where gold differs from currencies: although gold is also suitable as a means of payment and as a store of wealth, its value evolves in the opposite direction to that of currencies in times of economic crisis.
A greater risk of default by the State as debtor or high inflation do not devalue gold, but rather increase its value. With the exception of cryptocurrencies and perhaps works of art or jewelry, this behavior is unique to their knowledge, Dalio writes.
“If the financial system works well […]it makes sense [Währungen] and own similar financial instruments,” writes Dalio. “However, if the opposite is true, it makes sense to own gold. This is the main reason why gold is considered a good diversifier and why I have it in my portfolio.”