Ray Dalio, head of the world’s largest hedge fund, called gold a good bet in the foreseeable future. With bitcoin being the digital evolution of store of value assets, should ‘gold 2.0’ be considered an even better bet than the original?
Markets Undergoing 'Paradigm Shift'
Dalio, who founded the world’s largest hedge fund Bridgewater Associates, published a treatise to LinkedIn on July 17 where he recommended managers adding gold to offset the coming storm of zero-bound interest rates.
Central banks around the globe have been printing money and the Federal Reserve appears to be trending towards zero or negative interest rates, both signs that investors could potentially benefit from a store of value asset like gold.
The hedge fund wizard says the global markets are undergoing a “paradigm shift,” backed by 50 years of evidence that could lead to uncharted waters ahead.
“For this reason, I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio. I will soon send out an explanation of why I believe that gold is an effective portfolio diversifier.”
Last week the price of gold closed on a six-year high, with silver also having its best stretch of trading since 2016. While some analysts called for renewed investor interest in precious metals, others cautioned the price movement would be short-lived, and instead championed bitcoin.
Jim Iuorio, managing director of TJM Institutional Services, told CNBC that precious metals were benefiting from the recent price volatility of bitcoin,
“I think one of the reasons that silver’s rallied like it [has] is because bitcoin’s kind of been taken off the list of safe havens with its recent volatility, so something had to replace it.”
Bitcoin Better than Gold?
While Dalio may be recommending gold as an appreciable asset, bitcoin is quickly becoming the preeminent, digital alternative that has captivated millennial investors.
The hedge fund founder speculated on the type of assets that would perform best in the coming years, which applies to bitcoin,
“[Investments] that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold.”
Bitcoin has become as much a haven from the traditional markets as gold and stands to benefit from the economic uncertainty of geopolitical events and the devaluing of fiat.
It’s no surprise that March’s turmoil over Brexit led to rising prices for bitcoin in April. The same occurred throughout May, as bitcoin closely tracked the dollar/yuan exchange rate in the midst of deteriorating US-Chinese trade relations.
Dalio, as head of the world’s largest hedge fund, has a proven track record and a treasure trove of knowledge on the markets. However, many of the indicators he points to for gold are equally applicable to ‘gold 2.0,’--except bitcoin is only scratching the surface of its adoption potential.