Here’s why the founder of the world’s largest hedge fund tips more growth for gold
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The founder of the world’s largest hedge fund, Ray Dalio, is the latest to come out as a gold market bull.
In a Linkedin note he all but said gold would rise, noting it was the perfect commodity to meet the circumstances of the global economy.
In recent years investors had been hungry for stocks and assets with potential for similar returns. But he predicted these returns would diminish due to international conflicts but gold will shrug them off.
His note was entitled ‘Paradigm Shift’ signifying this change is a fundamental shift in investor mindset after the longest equity bull run in history (since the GFC).
“In paradigm shifts most people get caught overextended doing something over popular and get really hurt,” he said. “On the other hand if you’re astute enough to understand these shifts, you can navigate them well or at least protect yourself against them.”
Since 2009, central banks have been engaging in unsustainable levels of quantititative easing. Dalio argued it was approaching its limits for three reasons.
First central banks are near the point where interest rates cannot be cut further. Second investors put any earnings from lower interest rates into assets – rising unsustainably as a consequence. Third, as this happens risk return decreases so there is less of an incentive to buy them.
But he did advise against selling all your non-cash assets straight away.
“To be clear, I am not saying this shift will happen immediately. I am saying that I think it is approaching and will have a big effect on what the next paradigm will look like.”
Dalio noted people were still buying equity and equity-like investments. This is not because they think the bull run will never end. Rather because it could perform regardless of interest rates and inflation.
But as numerous events this century from terrorist attacks to the current trade war show, these may not be immune to conflict. Dalio specifically named gold as an asset that performs when money is being depreciated and conflicts were significant.
Dalio also noted investors are underweighted in such assets.
“For this reason I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio.”
He promised a further explanation of why gold was an effective portfolio diversifier “soon”.