Eric Sepanek
SBC Founder
Eric Sepanek is the founder of Scottsdale Bullion & Coin, established in 2011. With extensive experience in the precious metals industry, he is dedicated to educating Americans on the wealth preservation power of gold and silver.
Billionaire hedge fund manager Ray Dalio encourages investors to dedicate 15% of their portfolios to gold. The famed investor’s call for heightened diversification comes as fiat currencies tumble in value and reputation, led by the US dollar’s decline.
The bleak economic outlook is characterized by surging debt levels and unsustainable interest payments. Notably, the Bridgewater Associates founder prefers the yellow metal over Bitcoin for security, privacy, and long-term value.
The Debt Elephant in the Room
In a recent interview on The Master Investor Podcast, Dalio soberly outlined the colossal debt bubble threatening to burst in the US economy by highlighting the following stats:
- The national debt looms large at $37 trillion.
- The government spends $7 trillion annually, yet only takes in $5 trillion, leaving a $2 trillion deficit.
- Federal outlays are six times larger than inlays.
- Interest payments take $1 trillion out of the annual budget.
Dalio describes the cumulative deficit and accruing interest payments as plaque build-up blocking investments in other areas of the financial system. If the debt isn’t cleared out, it may cause an economic heart attack.
US Faces Threat of Debt Loop
With the dollar showing structural weakness and national debt spiraling out of control, Dalio draws parallels to the United Kingdom’s debt loop. Despite keeping its debt below US levels and managing a tighter debt-to-GDP ratio, the UK shoulders higher debt costs than the US and other major economies such as Japan and Germany. That’s because the British pound is no longer the world’s reserve currency.
Although America’s debt costs remain comparably low, the dollar’s potential loss of its safe-haven status could usher in a crippling debt loop where spiking interest expenses spur more borrowing, eroding investor confidence and boosting demand for alternative assets.
15% Gold Allocation
Dalio draws a parallel between today’s fiat currency devaluation and those of the 1970s and 1930s. With wealth preservation and inflation protection taking center stage, the famed investor advised a significant position in physical gold.
“If you were neutral and optimizing risk-return, you’d have about 15% in gold.”
Bitcoin is NOT an Ideal Hedge
In the same interview, Dalio downplays the effectiveness of Bitcoin during a risk-on environment. “I prefer gold,” he explains. “In historical debt and geopolitical crises, gold has always helped.”
Among the cryptocurrency’s weakest points, Dalio underscored the ability of governments to track it, the lack of privacy protections, the technological vulnerabilities, and the lack of adoption among official investors.
“I hold some Bitcoin, but not much,” he admits.
Two Risks of a Debt Crisis
The US economy is knee-deep in a debt disaster, and Dalio has highlighted two risk factors that could usher in a full-blown crisis.
1. Quantitative Easing
Lowering interest rates, which is the current trajectory, makes it easier to borrow dollars. This lower cost often leads to more government spending and steeper deficits. The GOP-led Congress has already greenlit trillions of dollars in additional spending.
2. Government Control of the Fed
President Trump’s dislike for Federal Reserve Chairman Jerome Powell jeopardize the central bank’s independence. A complete takeover would severely limit the Fed’s ability to intervene in the economy and tank confidence in US markets.
Dalio suggests both of these variables have already been set in motion, yet their impact has not been priced into the economy.
👉 Suggested Read: Introduction to Investing in Precious Metals