Billionaire and Wall Street legend: sell bonds and buy gold

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Ray Dalio, a billionaire and one of the world's most successful hedge fund managers for many years, advises investors in a new argument: sell your debt securities and buy gold. According to Dalio, we can't get around it anymore and it exists the world order that no longer arose after the Second World War.

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At the recent Munich security conference, this even became openly spoken by leaders such as Friedrich Merz and Emmanuel Macron. According to Dalio, all of this fits into what he calls “Phase 6 of the Great Cycle,” a period of disruption, power struggles and the crumbling of rules between major powers.

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So his advice to investors is to sell bonds and to investing in gold. How does he reach that conclusion?

Why bonds are a risky investment, according to Dalio

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We'll start with the five steps Dalio takes to conclude that (state) bonds are a bad or dangerous investment at this point in world history.

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1. The existing world order is crumbling
   The post-war order, in which America acted as the dominant power and the dollar as anchor, is losing stability. Superpowers are increasingly operating from pure logic of power rather than shared rules.
   
   
2. Economic war precedes real war
   According to Dalio, conflicts rarely start with tanks, but with trade wars, sanctions, capital restrictions and technological blockages. Exactly that dynamic is currently clearly visible.
   
   
3. Wars are financed by debt and money creation
   Major geopolitical tensions have historically led to higher government spending. They are financed with more debt and ultimately with more money creation by central banks.
   
   
4. That undermines bonds
   When states structurally borrow more and central banks buy up debt, the purchasing power of money often falls. Bondholders do get their money back, but in a currency that is worth less.
   
   
5. Capital restrictions are no exception
   In times of conflict, capital flows are restricted, assets are frozen and markets are closed. Debt securities are then not a safe haven, but a political tool.
   
   

All in all, according to Dalio, this is the basis for the conclusion that government bonds are currently not a safe investment.

Why Dalio recommends buying gold

Then we come to the next section of Dalio's investment advice, which is buying gold. These are the three steps he takes to increase his confidence in the gold price to pronounce.

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1. Gold is not a promise from a counterparty
   A bond is a claim against a government. By buying these, you are actually trusting their monetary policy. Gold is an asset without counterparty risk.
   
   
2. In wartime, trust is scarce
   When countries can no longer trust each other, the willingness to finance each other's debts decreases. Historically, people are then moving to 'hard' money. By that, we mean forms of money that cannot simply be printed, and you automatically end up with gold.
   
   
3. Gold protects against depreciation
   If world uncertainty increases and countries have to incur more debt to protect themselves, and possibly even wage wars, inflation will rise. This makes it extra attractive to invest in assets that are naturally scarce. This is how we often see that gold historically benefits from geopolitical turmoil and financial stress in the markets. Gold is the classic example of this.

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The bottom line is that, according to Dalio, we have entered a new phase of power politics. According to Wall Street legend, the laws of the jungle and the law of the fittest are what the coming decades are all about.

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According to him, this results in a world where debts are rising, money is increasingly being printed and international rules are blurring. Government bonds are then no longer a risk-free investment. In such a world, it's about tangible value, which has been why gold has always come to the surface for thousands of years.

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