Dalio: World is on the Verge of a New Capital War, and Gold is Still the Ultimate Hedge

February 3 Legendary investor Ray Dalio warned Tuesday the world is on the cusp of a “capital war” amid escalating geopolitical tensions and rising market volatility. A capital war involves weaponizing funds—with countries using tools like trade embargoes, blocking access to capital markets, and leveraging debt holdings to gain leverage. Dalio noted European investors holding dollar-denominated assets are “concerned” about potential sanctions, while the U.S. worries about losing European capital inflows or seeing Europe halt increases in its U.S. asset holdings. Despite recent historic sell-offs that pushed precious metals broadly lower, Dalio said gold remains the top choice for capital preservation in the current tense environment. “Central banks, governments, or sovereign wealth funds should ask: What’s the right gold allocation for my portfolio—and stick to that fixed ratio—because gold is an extremely effective risk diversifier for underperforming asset classes in a portfolio.” Dalio added, “Because gold diversifies risk, it outperforms during economic downturns and crises; in upswings, its performance is relatively flat, but it’s still a strong risk diversifier. The key is building a fully diversified investment portfolio.”