Bridgewater Associates founder Ray Dalio has urged investors to significantly increase their holdings of gold, recommending an allocation of 5% to 15% of their investment portfolios. This advice comes as the conflict involving Iran enters its ninth week, leading to a marked rise in global uncertainty.
In a Monday interview with CNBC, Dalio stated that under the current circumstances, gold serves as a crucial tool for diversification. He emphasized that "gold is a currency, it's the oldest currency," and noted that it is the second-largest reserve asset for global central banks, trailing only the US dollar. These remarks were made against a backdrop where the price of gold has fallen nearly 11% since the outbreak of the conflict, although it still maintains a year-to-date gain of approximately 8%.
The trajectory of the war remains unclear. US-Iran talks originally scheduled for last weekend in Pakistan ended without an agreement, and there is no timeline for the next steps in the peace process. The Strait of Hormuz has been subject to extensive blockades since the conflict began—despite a temporary ceasefire agreement reached on April 8th. Prior to the conflict, this strait facilitated about 20% of the world's seaborne oil shipments. US and international oil prices have surged nearly 70% since the start of the year.
Dalio has long advocated for investors to hold gold, typically suggesting an allocation higher than the commonly recommended market ceiling of 5%. He also expressed concern about the accelerating evolution of the global economic landscape, involving trends like multipolarity, the rise of artificial intelligence, and stagflationary pressures facing the United States.
The Strait of Hormuz has emerged as a critical variable. Dalio identified the ultimate control of the strait as one of the most significant current uncertainties. Iran has indicated it desires to levy transit fees for the strait as a potential condition for any peace agreement.
Simultaneously, domestic pressure is building in the United States. Rising oil prices are increasing transportation costs, the summer travel season is approaching, and the political calendar with midterm elections is adding urgency, all inclining Washington towards containing the conflict within a relatively limited scope. Dalio suggested, "You want to exit this war looking like a winner," hinting at a narrowing window for decision-makers.
Despite gold's ambiguous performance during the war, having declined nearly 11% since the conflict started, Dalio believes the current macroeconomic environment actually strengthens the case for holding gold.
He cited multiple factors supporting this view: a recent increase in international transactions settled in Chinese yuan, the US's habitual use of sanctions to influence the global financial system, and profound adjustments in global trade patterns are all eroding the dominance of the US dollar system. "There is more transacting outside of the dollar system," he said, "This is an environment that is good for gold."
It is noteworthy that the ICE US Dollar Index had earlier this year fallen to a four-year low, but the US dollar has re-emerged as a primary safe-haven asset since the Iran conflict began, which has somewhat suppressed the gold price.
Despite the sharp rise in oil prices, Dalio noted that the S&P 500 index has risen about 4% since the start of the Iran conflict, which he views as reasonable given continued strong US corporate earnings.
However, he also warned that the US is entering a "stagflationary period," characterized by rising inflation alongside a weakening labor market. He further pointed out that the world is accelerating towards a multipolar structure, with China aggressively pushing its renewable energy transition. These structural changes, combined with the geopolitical conflict, create a complex backdrop that investors cannot easily avoid.
Dalio expressed clear optimism regarding artificial intelligence. He stated that Bridgewater's structure is naturally suited to leverage computational power and decision-making systems, adding, "You either ride the wave or you get wiped out by AI."
He subsequently added a warning, however, suggesting that AI is likely to exacerbate already significant wealth inequality. In his view, technological transformation, geopolitical conflict, and structural economic changes are progressing simultaneously, presenting deep challenges that investors must now confront systematically.
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