Photo: CFR screengrab
Ray Dalio, one of the most successful hedge fund managers of all time, spoke with CNBC’s Maria Bartiromo at the Council on Foreign Relations this morning. The hedge fund god made some interesting comments on gold.
Here’s what we’ve transcribed from his interview. (emphasis ours)
“Gold is a currency. Throughout the history, I won’t tell you in length, money was like a check in a checkbook and what you would do was get your gold and gold was like a medium. So gold is one of the currencies– We have dollars, we have euros, we have yen and we have gold.
And if you get into a situation where there’s an alternative in this world, where we’re looking at ‘What are the alternatives?’ and the best alternative becomes clearly one thing, something like gold, there becomes a risk in that.
Now it doesn’t have the capacity. The capacity of moving money into gold in a large number is a extremely limited. So the players in this world that I have contact with that move that money really don’t view gold as an effective alternative, but it could be a barometer and it is an alternative for smaller amounts of money.
To this, Bartiromo asked if he owns gold.
“Oh yeah. I do. I think anybody, look let’s be clear, that I think anybody who doesn’t have…There’s no sensible reason not to have some. If you’re going to own a currency, it’s not sensible not to own gold. Now it depends on the amount of gold. But if you don’t own, I don’t know 10%, if you don’t have that and that depends on the world, then there’s no sensible reason other than you don’t know history and you don’t know the economics of it.
But, I. Well, I mean cash. So cash…view it in terms as an alternative form of cash and also view it as a hedge against what other parts of your portfolio are. Because as traditional financial assets, and so and in that context as a diversifier, as a source of that, there should be a piece of that in gold is all I’m saying.
“But anyway, in that notion, what I’m talking about here, in terms of your reflection, that putting aside gold, I don’t want to draw an inordinate amount of attention toward gold, but I would want to say in this world of liquidity and the world trying to find out ‘What is the place?’ in which also think about it for basically you get no interest rate. So the question is, ‘Is cash under the bed better than treasuries?’ You could be quite close to cash being under the bed better than treasuries, right? Because essentially you know you’ll get it back if it’s under the bed or in a bank and they’re not giving you any money on it anyway.
And so when you’re looking at an international investor, someone like I don’t know a Chinese investor or something, and you say ‘I’m going to do this and you’re going to give me zero interest rate for that.’ We are at one level and the question is ‘does there become emerging some clear alternative?’ And if there becomes a clear alternative we have to worry about that because that will be the notion of let’s say Japan. If we think, in Japan, there’s all this Japanese save and they buy their bonds and that can go on for a very long time and it can go on here for a very long time. The question is ‘what are the alternatives?’ and that is create shifts.
Watch the full hour long video here:
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