Key Takeaways
- • Ray Dalio argues in a LinkedIn article that gold is "the money that is least at risk of being devalued and/or confiscated," having been valued as money for thousands of years across almost all countries.
- • Dalio contends that gold's core advantage is its low confiscation risk, since it can be held in personal possession and cannot be stolen in cyberattacks, unlike fiat money that depends on payments from others.
- • Dalio recommends a strategic allocation of 5% to 15% of a portfolio to gold, with tactical overweighting during monetary breakdowns, confiscation risk, or economic and monetary wars such as sanctions.
- • Dalio reports gold has a real return of about 1.2% over long periods, is negatively correlated with cash, and generates no interest, which is why paper currencies can outperform it when interest rates are high.
- • Dalio advises that most investors own no gold and should treat it as a fundamental money rather than a speculative market.
Summary
Ray Dalio published a LinkedIn article titled "Gold is the Safest Money," in which he presents his views on gold drawn from a compendium of FAQs he assembled from reader questions and fed into his Digital Twin, "Digital Ray." Dalio states it is "indisputably true" that gold is a money least at risk of being devalued or confiscated, noting it has been valued as money over thousands of years while other currencies have come and gone.
Dalio frames the history of money as alternating between linked or hard-asset-backed currencies, which were redeemable for gold or silver at fixed rates, and fiat currencies, which are not backed by anything. He argues that when debt commitments exceeded the available gold, systems broke down either through deflationary depressions, when leaders kept the gold commitment, or through inflation, when they abandoned it. He cites 1933 and 1971 as the most recent linked-system breakdowns, with the United States moving to fully fiat systems in 1971. He also notes that gold is now the second-largest reserve asset held by central banks.
On investment characteristics, Dalio acknowledges that paper currencies can outperform gold when interest rates are high relative to currency devaluation, since gold pays no interest. He reports gold has had a low real return of about 1.2% and a negative correlation with cash, making the two useful together for liquidity. He also argues gold has lower confiscation risk than other assets because it does not depend on counterparties and cannot be stolen in cyberattacks, and says it has performed well during debt crises, high-tax confiscatory policies, and sanctions.
Dalio sets out his portfolio approach: gold should first be treated as a strategic asset allocation, which he says is between 5% and 15% of a portfolio depending on other holdings and risk preferences, with tactical deviations reserved for investors with genuine market-timing ability. He notes he advises against market timing and suggests most investors own no gold at all. The article is an opinion piece by Dalio and does not reference specific recent market events or price levels.
Dalio frames the history of money as alternating between linked or hard-asset-backed currencies, which were redeemable for gold or silver at fixed rates, and fiat currencies, which are not backed by anything. He argues that when debt commitments exceeded the available gold, systems broke down either through deflationary depressions, when leaders kept the gold commitment, or through inflation, when they abandoned it. He cites 1933 and 1971 as the most recent linked-system breakdowns, with the United States moving to fully fiat systems in 1971. He also notes that gold is now the second-largest reserve asset held by central banks.
On investment characteristics, Dalio acknowledges that paper currencies can outperform gold when interest rates are high relative to currency devaluation, since gold pays no interest. He reports gold has had a low real return of about 1.2% and a negative correlation with cash, making the two useful together for liquidity. He also argues gold has lower confiscation risk than other assets because it does not depend on counterparties and cannot be stolen in cyberattacks, and says it has performed well during debt crises, high-tax confiscatory policies, and sanctions.
Dalio sets out his portfolio approach: gold should first be treated as a strategic asset allocation, which he says is between 5% and 15% of a portfolio depending on other holdings and risk preferences, with tactical deviations reserved for investors with genuine market-timing ability. He notes he advises against market timing and suggests most investors own no gold at all. The article is an opinion piece by Dalio and does not reference specific recent market events or price levels.
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