Hedge fund potentate Ray Dalio is a gold bug? Not quite, but he does recommend investing in the metal amid what he calls a coming “paradigm shift” in investing.
What the Bridgewater Associates chief means is that investors’ enthusiasm for stocks—the S&P 500 recently set a record—will wane because equity’s popularity will overstay its welcome and bring diminished returns ahead.
And certainly, gold has been nudging up since last August, amid the US-China trade tiff and some worrisome economic indicators overseas.
Buying gold makes sense, the founder and co-chief investment officer of the world’s largest hedge fund argued on LinkedIn, in light of brewing international conflict and a lack of suitable alternatives.
So an investment to favor, he wrote, is one that will “do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold.”
Historically, gold does well in times of trouble. That was the case during the financial crisis and its aftermath, when the gold price almost tripled from August 2007 to September 2011. Then, it peaked at $1,823 per ounce. It tumbled back to around $1,000 by 2015.
But since late last summer, the yellow metal has enjoyed a turnaround. Gold advanced to $1,428 from $1,176, a 21% increase. And Wednesday, when Dalio posted his LinkedIn piece, it rose 0.7%.
Indeed, people have piled into stocks because of interest rates since the 2008-09 financial crisis. The Fed seems to have halted and apparently will reverse its bid to push rates higher, owing to ebbing world economic growth.
Meanwhile, in Dalio’s estimation, the thrill soon will be gone from stocks. He didn’t say why, but forecasts are for ebbing earnings, which could remove the luster from equity.
Dalio’s views of the economy have run hot and cold over the past few months. Last fall, he warned of an impending recession, likely for 2020, and a lack of means to combat it, both by the low-rate-happy Federal Reserve and the too-indebted US consumer. But in March, he eased off that downbeat forecast due to the Fed’s halt on its campaign to hike interest rates.
“In paradigm shifts, most people get caught overextended doing something overly popular and get really hurt,” he wrote on LinkedIn Wednesday. “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.”