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(Bloomberg) — Billionaire Ray Dalio 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.
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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.
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. To stem the bond rout, Treasury Secretary Scott Bessent this week announced plans to boost buybacks of long-dated debt, a surprise move that so far has provided little more than short-term support.
The latest developments are consistent with the debt-cycle framework Dalio outlined in his book “How Countries Go Broke: The Big Cycle,” he wrote. Rising debt-service costs eventually collide with insufficient investor demand, he said, forcing governments to accept higher interest rates or central banks to print money to buy debt, weakening currencies and fueling inflation along the way.
Dalio estimates US government revenue at about $5.5 trillion this year against $7.5 trillion in spending, leaving a $2 trillion shortfall. Interest costs alone will be around $1 trillion this year, while about $10 trillion of debt needs to be refinanced.
Without a change in course, a US debt crisis could arrive “in three years, give or take two,” Dalio said. 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.
Dalio said similar fiscal strains are confronting countries including the UK, China and Japan.
That is why “I expect non-government-produced monies like gold and Bitcoin to do relatively well,” he wrote.
Gold jumped to the highest since May on Friday while Bitcoin topped $77,000, heading for its biggest weekly rally since 2023.
