North Korea - not a reason to sell
Hedge fund manager Ray Dalio recommends investors consider placing 5 per cent to 10 per cent of their assets in gold as a hedge against current political and economic risks.
Dalio, the idiosyncratic billionaire who leads the world’s largest hedge fund at Bridgewater Associates, said the market may be challenged by current events, according to a LinkedIn post on Thursday.
“The emerging risks appear more political than economic, which makes them especially challenging to price in,” wrote Dalio, who rarely makes specific market recommendations.
Among the risks Dalio mentions: “Two confrontational, nationalistic, and militaristic leaders playing chicken with each other” and “the odds of Congress failing to raise the debt ceiling (leading to a technical default, a temporary government shutdown, and increased loss of faith in the effectiveness of our political system) rising.”
While Dalio says his firm has no “unique insight” regarding the outcome of these matters, “we can also say that if the above things go badly, it would seem that gold (more than other safe haven assets like the dollar, yen, and treasuries) would benefit, so if you don’t have 5-10% of your assets in gold as a hedge, we’d suggest that you relook at this."
Gold has risen 12 per cent this year, helped by a falling dollar and signs of tame inflation that could slow the Federal Reserve’s hand in raising interest rates. Low rates boost the appeal of gold because it doesn’t pay interest. This week, U.S.-North Korea tensions boosted demand for the metal as a haven, sending prices to the highest since early June.
The Dalio letter comes during a period of faltering returns for the famed investor. The company’s flagship Pure Alpha II fund is down 2.8 per cent in 2017 through July, far from its historic average of 12 per cent.
Dalio directs investors to think anew about gold.
“Don’t let traditional biases, rather than an excellent analysis, stand in the way of you doing this (and if you do have an excellent analysis of why you shouldn’t have such an allocation to gold, we’d appreciate you sharing it with us),” he says.