Ray Dalio, founder of Bridgewater Associates, has issued a fresh warning that foreign governments and investors are reassessing their willingness to allocate funds to U.S. assets against a backdrop of rising unease and economic tensions. In an interview during the World Economic Forum's annual meeting in Davos, Dalio stated that as U.S. President Donald Trump adopts a more aggressive political stance, global financial conflicts could enter a new phase. "The other side of trade deficits and trade wars is capital and capital wars. If you observe these conflicts, you cannot ignore the possibility of a capital war. In other words, the willingness to buy assets like U.S. debt may not be as strong as it once was."
Dalio expressed concern that if mutual trust is damaged, countries holding large amounts of dollars and U.S. Treasury bonds may no longer be willing to continue financing the U.S. fiscal deficit. At the same time, the U.S. continues to issue substantial amounts of debt, creating a dangerous situation if confidence wavers on either side. "We all know that holders of the U.S. dollar, and the U.S., which needs to constantly issue dollars and debt, are actually worried about each other. If other countries hold large amounts of dollar assets but there is a lack of trust between them, and we are producing dollars in large quantities, this becomes a major problem."
On Tuesday, U.S. Treasury prices fell sharply. As investors assessed renewed tariff threats from Washington, fears of a trade war between the U.S. and Europe resurfaced, prompting capital to flow out of U.S. assets, while gold and silver, the two major precious metals, hit new highs. Over the weekend, Trump announced on social media that a 10% tariff would be imposed on goods imported from Denmark, Norway, Sweden, France, Germany, the United Kingdom, the Netherlands, and Finland starting February 1. Trump also declared that the tariff rate would increase to 25% starting June 1, until an agreement is reached for the U.S. to "comprehensively and thoroughly purchase Greenland."
Regarding this, Dalio pointed out that similar situations have occurred many times in history: economic conflicts often escalate from trade friction to games involving capital flows and currency. "When international geopolitical conflicts occur, even allies are unwilling to hold each other's debt and tend to shift towards 'hard currency.' This is logical, a repeatedly verified fact, and has been common throughout world history."
Dalio once again emphasized the importance of diversification, advising investors not to be overly reliant on a single asset class or a single country. He specifically highlighted gold's crucial hedging value during periods of financial turbulence, recommending an allocation of 5%–15% gold in an investment portfolio. "When other assets perform poorly, gold often performs well; it is a very effective diversification tool."
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