Why Ray Dalio Says the Dollar System Is Breaking Down Right Now

TLDR

• Ray Dalio warns the global monetary order is breaking down as central banks change how they handle fiat currencies
• Gold was the best performing market in 2024, outperforming tech stocks, reaching all-time high of $2,689.39
• Dalio fears “capital wars” where countries holding US dollars and Treasurys may stop financing US deficits
• Central banks and fiat holders are worried about each other while the US continues issuing large volumes of debt
• Dalio recommends 5-15% portfolio allocation to gold as effective diversification against financial stress

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Ray Dalio issued a warning about the global financial system at the World Economic Forum in Davos. The billionaire hedge fund manager told CNBC the monetary order is breaking down.

Dalio pointed to a shift in how central banks handle fiat currencies. He said both fiat holders and those who need it are worried about each other.

The Bridgewater Associates founder highlighted gold’s performance in 2024. Gold markets outperformed tech stocks last year, making it the biggest market mover.

On Tuesday, spot gold reached an all-time high of $2,689.39. Investors moved to safe-haven assets as tensions increased.

Dalio warned of potential “capital wars” following trade conflicts. Countries holding large amounts of US dollars and Treasury bonds may lose interest in financing US deficits.

The US continues to issue large volumes of debt. Dalio said this creates problems if confidence weakens on either side.

Treasury prices fell on Tuesday as investors assessed new tariff threats from Washington. President Donald Trump threatened tariffs on European countries over Greenland.

Historical Patterns Repeat

Dalio said history shows similar episodes where economic conflicts escalated beyond trade. These conflicts spread to capital flows and currency disputes.

Central banks are not handling fiat currencies the same way they used to. Dalio described this as a change in behavior.

Gold as Portfolio Protection

The hedge fund manager stressed the importance of diversification for investors. He said investors should not rely too heavily on single asset classes or countries.

Dalio recommends gold make up 5% to 15% of a typical portfolio. He called it an effective diversifier during periods of financial stress.

Crypto executives gathered in Davos for World Economic Forum events this week. Coinbase CEO Brian Armstrong said he would discuss how crypto can update financial systems with world leaders.

Armstrong plans to talk about the digital asset market structure bill with bank executives. The Senate postponed markup on the legislation last week.

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