Dear there,
In August 1971, Ray Dalio was working as a clerk on the New York Stock Exchange when President Nixon announced that the United States would suspend the conversion of dollars into gold for foreign official holders
A promise underpinning the international monetary system was being withdrawn, and Dalio arrived at work the following morning expecting shares to fall. The Dow rose almost 4%, giving him an early lesson in how little an apparently reasonable conclusion could tell him about what markets would actually do.
The account, as described in Bridgewater’s All Weather Story, describes how the experience encouraged him to study earlier monetary upheavals. What had seemed extraordinary within his own short experience had precedents elsewhere, and he began looking beyond the events he had personally lived through. It is a useful habit for anyone whose savings may need to outlast the financial arrangements under which they were accumulated.
There is also something rather reassuring about an investor prepared to explain what he once misunderstood. We have considerable respect for Dalio at GoldCore, particularly for the effort he puts into examining the assumptions beneath the financial system and making that thinking available to others. His work encourages a question that can easily disappear beneath discussions of interest rates and quarterly returns: what are we relying upon when we say that our wealth is safe?
A chart circulating this week brought that question back into view. It showed gold exchange-traded funds accounting for approximately 87% of the holdings disclosed by Dalio’s family office, with one enormous bar for SPDR Gold Shares dwarfing almost everything beside it.
The chart was seen by over 200,000 people with many excited that the legendary investor had allocated such a huge amount to gold products. Marino Management’s filing for the end of June showed approximately $407.6 million in SPDR Gold Shares and $11.3 million in iShares Gold Trust, out of total disclosed holdings of about $479.9 million.
So, be cautious here because this does not mean Dalio and his family hold such a large chunk of their wealth in gold derivative products, instead it means that these figures describe the securities covered by that particular regulatory return, rather than a complete inventory of Dalio’s wealth. They cannot tell us his overall gold allocation, whether he owns additional bullion elsewhere, or how much of the family’s money sits in assets the form does not capture. We should resist filling those gaps with whatever would make the most satisfying story.
Even with that qualification, nearly $419 million in disclosed gold funds is a substantial exposure, consistent with the attention he has given the metal in his public writing. So rather than getting bogged down in the percentage here, consider the reasons behind his investment decisions.
Dalio has repeatedly connected his interest in gold with concerns about debt and the value of money. In his own writing, he has also made the case for maintaining some gold exposure rather than trying to time every change in monetary conditions. More recently, reporting from his October appearance at the Greenwich Economic Forum put his suggested allocation in a diversified portfolio at between 5% and 15%, considerably removed from the number travelling around social media.
The underlying concern is easy enough to recognise by anyone familiar with the concept of sound money. A government bond represents a promise to make payments in a currency, and the usefulness of those payments depends partly on what that currency will buy when they arrive. Receiving every pound owed is welcome, but it is possible to receive the full amount and discover that it provides less of the retirement, education or financial independence for which it was intended.
This is where discussions about government debt become more personal than their enormous figures initially suggest. When borrowing costs consume more revenue, governments face difficult choices over spending, taxation and further borrowing. Inflation can reduce the real burden of existing fixed-rate debt, although higher refinancing costs and inflation-linked obligations complicate the calculation. None of this makes inflation an effortless solution, or an inevitable outcome. It does explain why the interests of a heavily indebted borrower and those of someone preserving the purchasing power of savings may diverge.
We tend to encounter these problems through separate conversations. One concerns the public finances, another the return on our investments, and a third the increasing cost of ordinary life. Yet a household can be affected by all three at once, even while its investment statement continues to show a perfectly respectable number.
Gold provides a way to hold part of one’s wealth in an asset that does not itself require a borrower to make good on a repayment promise. That characteristic helps explain its place in a discussion about monetary confidence. It does not make the price dependable from one month to the next, nor does it mean that interest-bearing assets cease to be useful. An asset can serve a purpose over a long holding period while proving thoroughly inconvenient over a shorter one.
How the gold is held is a separate question. The chart shows shares in gold funds, which have their own legal and operational arrangements; it does not show Dalio personally holding allocated bars. Someone seeking exposure to the gold price may have different requirements from someone whose priority is direct ownership, access or the jurisdiction in which their metal is stored. Once we have decided why we want gold, the way we hold it should follow from that purpose.
There is no need to know every detail of Dalio’s finances to find his questions useful. Most of us have neither his resources nor his investment arrangements, and copying a visible fragment of somebody else’s portfolio would be an odd substitute for understanding our own. We can, however, examine how much of what we own depends on similar promises, even when those holdings appear under different names.
The young clerk who arrived at work expecting a fall in shares had underestimated how markets would respond to a change in the monetary rules. The broader lesson is one we can use without attempting to predict the next such change. Over the years our wealth must support us, familiar arrangements may be tested in ways our own experience has not prepared us for. Holding some gold is one way of making provision for that possibility while we continue to save, invest and plan within the world we know.
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