Author: Ray Dalio

Compiled by Golden Ten Data

Recently, Dalio, founder of Bridgewater Associates (Bridgewater Associates), shared his views on gold on social media. The following is a summary of his views.

The underlying logic of gold

The way I (aka Dalio) views gold and the price of gold seems to be different from most people. Most people have the misunderstanding that gold is viewed as a metal rather than the most mature form of money, while treating fiat money as real money rather than debt. They think the central bank will indefinitely create fiat currency to prevent debt defaults. This perception stems from the fact that most people have never lived in the gold standard era, nor have they studied the repeated debt-gold-currency cycles in history.

For me, gold is money — it has the same purchasing power as cash, and the long-term real return rate is about 1.2% because it doesn't generate revenue on its own. But just like cash, its purchasing power can be used to create loans and allow people to establish profitable businesses through stock holdings. If these stocks are high quality and generate enough cash flow to repay the loan, stocks are certainly a better choice. But when they are unable to repay their loans, and the central bank prints money to prevent default, illegal currency (gold) shows value.

Essentially, gold is a cash-like currency, but the key difference is that it cannot be printed or depreciated. It is an excellent hedge against stocks and bonds when market bubbles burst, or when credit systems between countries collapse (such as in times of conflict).

More accurately, I think gold is the most stable fundamental investment, rather than an ordinary commodity. It's a currency like cash, but unlike a credit instrument that creates debt, it directly settles transactions — it can complete payments without creating debt, and can directly repay debts.

Over a period of time, the supply and demand relationship between debt currencies and gold currencies has fundamentally changed. Considering the respective supply and demand ratios and the potential size of the bubble, I chose to firmly hold a gold position in my portfolio. Investors who are hesitating between “zero positions” and “low balance positions” are likely to be making a strategic mistake.

Wouldn't silver, platinum, or inflation-protected bonds be a better choice?

Although other metals also hedge against inflation, gold has a unique position in the asset allocation of investors and central banks: it is the most widely accepted medium for illegal currency trading and wealth storage, and can effectively spread the risk of other assets and currencies.

Unlike fiat currency debt, gold has no inherent credit risk or depreciation risk — in fact, gold performs best when other assets perform the worst, which is like an “insurance policy” in a diversified investment portfolio.

Although silver and platinum have similar properties, they lack the same level of historical value storage. The price of silver is more driven by industrial demand and more volatile; platinum is limited by its scarcity and specific industrial uses. In terms of the core function of wealth preservation, none of them can match the general acceptance and stability of gold.

Inflation-protected bonds are a good hedge in normal times (depending on the level of real interest rates), but they are essentially debt commitments. In the event of a major debt crisis, its performance depends entirely on the issuing government's credit. Historically, during periods of high inflation, the government often manipulated inflation data to reduce actual repayment costs. As a result, they are unable to provide the same level of security as gold in a systemic financial crisis.

As for high-growth stocks such as AI, although they have considerable upside potential, their historical performance was indeed disappointing during periods of severe inflation and economic hardship.

Gold has irreplaceable diversified value and should have a place in most portfolios. But now that the price of gold is high, is it wise to hold it at this time?

How much gold should be in the mix?

Historical data shows that due to the negative correlation between gold and stocks and bonds (especially during the period when stocks and bonds double kill), an allocation ratio of about 15% can provide an optimal benefit-risk ratio. However, the cost of this optimized combination is a reduction in long-term expected returns.

My personal approach is to superimpose gold positions as a combination, or appropriately leverage the overall portfolio, so that the optimal risk-return ratio can be maintained without sacrificing the expected return. This is my constructive suggestion for most people's gold allocations.

As for tactical timing, that is another complicated topic, and I generally discourage ordinary investors to try it.

How does the rise of gold ETFs affect the trend of gold prices?

The price of any asset is equal to the buyer's total capital divided by the seller's supply. Gold ETFs have indeed increased market liquidity and transparency, and lowered the entry threshold. However, what needs to be clarified is that the size of the gold ETF market is still far smaller than the physical gold market and central bank holdings, and is not the main driving force behind this round of gold price increases.

Is gold replacing US bonds as a new “risk-free asset”?

This is true. Gold is systematically replacing US Treasury bonds as a risk-free asset in many central bank and institutional investors' portfolios. Investors with a historical perspective know that gold is essentially a risk-free asset compared to any fiat currency debt.

Gold is the central bank's second-largest reserve currency today, and its historical risk is far lower than all government debt. Debt assets are essentially promises of repayment, and when debt is excessive, governments historically had only two options: default or depreciate. Since 1750, 80% of fiat money has disappeared, and the remaining 20% have depreciated sharply.