Billionaire investor and Bridgewater Associates founder Ray Dalio issued a warning on Monday, April 27, stating that the global economy and financial markets face increasing complexity and uncertainty as the Iran conflict enters its ninth week. He asserted that the U.S. economy has slid into a "stagflationary" environment, where persistent inflation pressures and slowing growth momentum mean the Federal Reserve should not rush to cut interest rates. Concurrently, he emphasized the growing importance of gold as both a form of "money" and a tool for diversification, recommending investors allocate 5% to 15% of their portfolios to gold.
In an interview with CNBC, Dalio noted that a key global concern is whether the U.S. can achieve a favorable outcome in the ongoing conflict. He pointed to multiple domestic pressures in the U.S., including rising gasoline prices, the approaching summer travel season, political considerations related to the midterm election cycle, and external hopes for a relatively short-lived conflict.
Another critical issue, according to Dalio, is who will ultimately control the Strait of Hormuz. This vital Persian Gulf waterway has been largely obstructed since the conflict began, despite a prior ceasefire agreement reached on April 8. Before the war, the strait facilitated approximately 20% of global seaborne oil shipments. Any prolonged disruption would not only drive up energy prices but also amplify worldwide inflationary pressures.
"So, you want to ultimately emerge from this conflict with a victory," Dalio stated.
Iran has previously expressed a desire to include transit fees for passage through the Strait of Hormuz in any peace agreement. Following the cancellation of U.S.-Iran talks scheduled for last weekend in Pakistan, the path to ending the conflict has become increasingly unclear. The war, which began in late February between the U.S., Israel, and Iran, poses greater risks to energy markets, inflation, and global sentiment the longer it continues.
Beyond geopolitical risks, Dalio specifically warned that the U.S. economy has entered a period of stagflation—a scenario characterized by slowing economic growth alongside persistent inflation, which complicates monetary policy decisions.
"We are clearly in a stagflationary period," Dalio said on CNBC's "Money Movers," "because there is a more immediate inflation problem, and inflation remains far from target."
He argued that policymakers must exercise caution under these conditions. The combination of ongoing inflation and weakening growth means the Fed cannot easily ease policy nor ignore downside economic risks.
Dalio noted that if Kevin Warsh were to succeed Jerome Powell as Fed Chair in mid-May and choose to cut rates, it would be a mistake. He believes reducing rates now could damage market trust in the central bank.
"Now is certainly not the time to cut rates," Dalio said. "That would cause you to lose credibility, and the Fed in particular would lose credibility at this critical moment."
He further indicated that, looking at monetary policies in other countries, it is difficult to see major central banks pivoting decisively toward rate cuts. "Whatever benchmark you use, given current information, it does not lean toward cutting rates."
According to the CME FedWatch Tool, traders currently assign a 100% probability that the Fed will keep rates unchanged at this week's meeting. Federal funds futures also suggest the policy rate is most likely to remain steady for the rest of the year.
Dalio stressed that investors need to reassess the role of gold in the current environment. He emphasized that gold is not merely a commodity or safe-haven asset, but a form of money.
"I think it's important to understand that gold is money," Dalio said.
He noted that gold is the oldest form of money and a key reserve asset for central banks. While the U.S. dollar remains the dominant global reserve currency, gold is the second-largest asset in central bank reserves, ahead of the euro and the Japanese yen.
Dalio stated that the global financial system is changing rapidly. In recent years, an increasing number of international transactions are bypassing the dollar system, usage of the renminbi in cross-border settlements and trade is growing, frequent use of U.S. sanctions, and the reshaping of global trade patterns are all prompting nations and investors to reevaluate asset allocations beyond the dollar.
In his view, gold holds particular significance in this context. It does not rely on any single country's credit nor is it entirely subject to one central bank's policy. Therefore, against a backdrop of a multipolar global monetary system, rising geopolitical risks, and increased risks of sanctions and capital controls, gold's diversification benefits become more pronounced.
With the Iran conflict extending into its ninth week and global uncertainty rising, Dalio recommended investors allocate 5% to 15% of their portfolios to gold.
"Gold is an effective diversification tool," Dalio stated. "The current environment is favorable for gold."
In fact, Dalio has long advocated for investors to hold gold, often suggesting an allocation higher than the traditional maximum of around 5% seen in conventional portfolios. Although gold's performance during the Iran conflict has not been entirely clear-cut, it has risen approximately 8% year-to-date, continuing its strong performance following historic gains in recent years.
Meanwhile, the ICE U.S. Dollar Index, which earlier this year fell to a four-year low, has reemerged as a safe-haven asset during the conflict. As U.S. and global oil prices have surged this year, concerns about inflation and growth prospects have intensified simultaneously.
Dalio's core argument is that in a world of sticky inflation, high geopolitical risks, and an evolving dollar system, gold should not be viewed merely as a short-term hedge but as a strategic asset within a portfolio.
Despite sharply higher oil prices and elevated geopolitical risks, Dalio believes the recent strong rebound in U.S. stocks has some justification. He noted that the S&P 500 has gained about 4% since the outbreak of the Iran war, primarily due to continued robust corporate earnings.
In other words, while the market is pricing in risks related to war, energy, and inflation, it is also reflecting the resilience of corporate profits. As long as the earnings outlook does not deteriorate significantly, equities may continue to find support.
However, Dalio also cautioned that the world is changing rapidly. The global order is moving toward a more multipolar structure, artificial intelligence is advancing quickly, China is accelerating its adoption of renewable energy, while the U.S. faces stagflationary pressures of higher inflation and a weaker labor market.
These shifts suggest that the macroeconomic logic that has supported markets for many years may be transforming. Investors cannot rely solely on traditional stock-bond allocation models and must pay greater attention to genuine diversification among assets.
Speaking about artificial intelligence, Dalio expressed being "very excited" about its prospects. He pointed out that Bridgewater was originally founded to leverage computing power and systematic decision-making, implying that AI could have a profound impact on investing, business operations, and decision-making systems.
"In the AI wave, you are either on the crest of the wave or you get wiped out by it," Dalio said.
He also warned, however, that AI could further widen the already significant wealth gap. As technological benefits increasingly flow to those with advantages in capital, data, and computing power, the risk of social division may intensify.
In Dalio's view, war, stagflation, changes in the dollar system, the AI revolution, and widening wealth inequality are collectively shaping a new macroeconomic environment. For investors, this means that focusing solely on short-term market fluctuations is insufficient; it is more crucial to understand the deep-seated changes occurring in world order, monetary systems, and the logic of asset allocation.
Comments