In times of crisis, gold has long been the ultimate safe haven for investors. Should the potential problems directly involve the world’s largest economy the United States of America – fears of such problems are usually greatly magnified. The current uncertainty, which is due in part to concerns about a conflict between the United States and the famously unstable North Korean dictator, Kim Jong Un may make many investors skittish. When this potential threat is combined with concerns about a technical default by the United States if Congress fails to the raise the debt ceiling, fears of another problem with a completely different cause adds to investor worries.
Despite these concerns, the US stock market continues to shatter records with its extraordinarily rapid growth. Reflecting this growth and other strong economic indicators, US retail demand for physical gold has dropped to its lowest point in nearly ten years. Most investors continue to profit from the strong market rather than fleeing to the safety of gold. However, not everyone seems to agree.
Despite the reduced demand for physical gold, the COMEX exchange reached its highest quarterly figure in history. There is also significant new investment in gold by some of the most important investors. The most notable of these investors is Ray Dalio, the founder of Bridgewater Associates, the world’s largest hedge fund. Dalio just raised his investment in gold a very substantial 400% in the last quarter. When asked about this move, Dalio cited his concerns about the rising geopolitical tensions. He said “if…things go badly gold (more than any other safe haven assets like the dollar, yen and treasuries) would benefit…). He suggests keeping at least 5%-10% of assets in gold as a hedge.
Dalio has consistently recommended gold over the past few years. And his grim view on world affairs also shouldn’t come as a big surprise. Since soon after President Trump’s election, the hedge-fund manager has expressed concern about what he sees as a foreign policy he believes may become “comparatively” more aggressive.
As of now, the majority of investors are still hesitant to commit large resources to gold. Many of the most commonly used indicators point towards this continued economic growth.
So, whom, one might reasonably ask, is correct in the current situation? The analysts who are acting based on a strong and improving US economy, with nearly all indicators pointed in a positive direction, or those concerned with their perception of the current tensions?
Ray Dalio himself admitted in a LinkedIn post, “…the dangers lurking under the surface appear to be more political than economic, making them difficult to gauge.” Does this mean the world’s biggest hedge fund investor is “hedging” his concerns? He is concerned enough to move some of his very substantial portfolio into gold, and has not done too badly for himself in the past.