Dalio: Gold is the safest currency.

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Bridgewater Fund founder Ray Dalio pointed out in his latest article that he has recently received a large number of questions about gold, so he decided to answer them collectively and compile them into a gold FAQ (published in mid-October). At the same time, he also input these contents into his “digital avatar” Digital Ray, so that more people can discuss the topic of gold in depth.

Dalio believes that gold is indisputably a form of “money”, and is the form least likely to be devalued or confiscated. He points out that throughout thousands of years of history, in almost all countries and civilizations, gold has always been treated as money, while all other monetary forms have disappeared over time.

Dalio divides money in history into two types: one is “money backed by hard assets”, for example, currencies pegged to gold or other scarce assets (such as silver); the other is “fiat money”, i.e., currencies not backed by any asset, with supply entirely decided by governments and central banks.

The former, in essence, is a government promise—holders can convert paper money into gold or silver at a fixed rate; the latter has no such support, so it can be issued limitlessly.

Dalio analyzes that historically, whenever a country adopts a gold standard, as long as debt levels relative to gold reserves are too high, the monetary system encounters problems. Facing this dilemma, national leaders usually have two choices:

First, stick to the gold standard, leading to debt defaults, liquidity crunches, and deflationary depressions;
Second, abandon the gold standard commitment, create money to ease debt pressure but at the cost of currency devaluation and inflation.

Before the U.S. established the central bank in 1913, most countries took the first route; after central banks appeared, there was a shift toward the second. Either way, the result is major restructuring of debt and money, eventually rebalancing the economy via price increases.

Dalio points out that the end of the gold standard in 1933 and 1971 are the two most typical examples in modern times. He further explains that since the U.S. dollar delinked from gold in 1971 and the world fully entered the fiat system, understanding how past fiat regimes operated in high-debt eras is key to analyzing the current situation.

History proves that when total debt is too high and money supply is insufficient, central banks always choose massive money and credit creation, triggering inflation and pushing up gold prices. In other words, in such circumstances, gold performs much better than “paper-debt money” (i.e., debt-backed paper currencies). In the long run, gold has a better record in maintaining purchasing power than any fiat currency, and therefore is now the world’s second largest central bank reserve asset, second only to the U.S. dollar.

However, Dalio also notes that paper currencies and gold each have their advantages. Paper money yields interest and, in high-rate environments, can sometimes offer better returns than gold. When rates are high enough to offset currency devaluation and default risks, holding paper is more cost-effective; but when devaluation or credit risk rises and rates can't offset it, gold becomes more attractive.

He emphasizes that he does not advise investors to “time the market” for gold, but to treat it as a long-term holding. Citing data, he notes that gold’s real return is about 1.2%, and it is negatively correlated with cash. Therefore, from an allocation perspective, a combination of gold and cash provides good liquidity and protection in nearly all economic environments.

Dalio believes gold as money has another unique advantage—it is harder to confiscate or freeze than other currencies. Gold does not depend on anyone else’s ability to pay, nor on the banking system. Thus, its value is not easily lost due to government sanctions, financial crises, or cyberattacks.

He notes that in history, gold performed especially well under two scenarios: first, when financial or debt crises led to high taxes and asset seizures; second, during economic and financial wars (such as sanctions or asset freezes). In such periods, gold soared. Strictly speaking, it did not “appreciate”; rather, it maintained value while other currencies fell. For this reason, gold has proven over the long term to be the most reliable form of money, able to maintain value in line with living costs across extremely long time spans.

As an investment asset, Dalio emphasizes that his way of looking at gold differs from ordinary investors. Most people regard gold as a speculative target, whereas he sees it as a form of “fundamental money.”

In his portfolio, Dalio analyzes gold just as he would stocks, bonds, or cash—assessing its expected returns, risk, correlation, and liquidity relative to other assets, and then deciding the strategic allocation ratio.

He points out that investors should first determine their long-term strategic asset allocation, rather than make tactical decisions based on short-term market moves. In other words, the core question about buying gold isn’t “Will it go up?” but “How much gold should my long-term portfolio hold?”

Dalio’s model shows that in a rationally diversified portfolio, the ideal allocation to gold is usually between 5% and 15%, depending on an investor’s overall assets and risk preferences. If an investor has no market timing ability, they should maintain this strategic ratio, not frequently trade.

He adds that, tactically, when the monetary system is in crisis, confiscation risks are rising, or economic sanctions are frequent, gold allocation should be increased; conversely, in stable periods, it can be moderately reduced.

However, Dalio cautions that over the long run, gold, like cash, is not a high-yielding asset because it is not a "productive asset" and does not generate cash flow or profit. Nonetheless, gold should still be regarded as a "fundamental money" to hold long-term. He also laments that most investors have never allocated any gold at all.

Risk Warning and DisclaimerThe market involves risk, investment needs caution. This article does not constitute personal investment advice, nor does it take into account the special investment objectives, financial situations, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article fit their particular situation. Investing accordingly is at your own risk. ```