Dalio: Cut Bonds, Put 10-15% in Gold as US Debt Crisis Looms

Ray Dalio is telling investors to lighten up on bonds and load up on gold. The Bridgewater founder said investors should reduce their bond holdings and put as much as 15% of their money in gold to hedge against the risk of a US debt crisis that he warns could be just three years away.

The core call

In a LinkedIn post Friday, the Bridgewater Associates founder said investors should diversify across assets and countries with strong finances. Underweighting bonds and holding about 10% to 15% of a portfolio in gold and a bit of Bitcoin could both reduce risk and boost returns, said Dalio, who has long warned about the dangers of mounting government debt.

The message: cut duration risk, add hard assets, and hold something outside the government-money system.

Why now

His comments come at a time when long-term Treasury yields have risen to multiyear highs and Japan, America’s largest foreign creditor, has sold US bonds to support the yen. That combination, rising long-end yields and a shrinking foreign bid, is exactly the setup Dalio has flagged for years.

Dalio pointed to the US Treasury’s recent decision to expand government debt buybacks as one signal among several, and to Japan trimming its holdings of American bonds as long-dated yields climb.

The fiscal math behind the trade

The billionaire investor’s arguments center around the rapidly deteriorating US fiscal position as the federal government is expected to collect approximately $5.5 trillion in revenue this year while spending is anticipated to be at roughly $7.5 trillion. In other words, this presents a shortfall of around $2 trillion. At the same time, $10 trillion of government debt needs to be refinanced, and interest expenses alone are approaching $1 trillion.

He advocates reducing the budget deficit to 3% of gross domestic product, from the current level of about 6%, through a combination of spending cuts, higher tax revenue and lower interest rates.

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A global debt problem, not just a US one

He extended the warning well past the United States. Britain, the European Union, China and Japan face comparable debt and deficit problems, he said, and he expects currency devaluation across most major economies as a result.

That is the case for non-sovereign stores of value, and why gold and Bitcoin keep appearing in the same sentence in his notes.

Options market and stocks to watch

Traders looking to express the Dalio thesis have a few obvious vehicles:

GLD: The largest physical gold ETF. Watch flow here for confirmation of the 10-15% allocation shift Dalio is calling for.

IAU: Cheaper gold ETF alternative, often sees retail rotation when gold headlines hit.

TLT: The long-duration Treasury proxy. If Dalio’s underweight-bonds view spreads, watch for continued pressure and put flow.

IBIT: The BlackRock spot Bitcoin ETF captures the “a bit of Bitcoin” part of the trade.

GDX: Gold miners tend to trade as a levered play on the metal, worth watching if gold keeps grinding to new highs.

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