On a statement of Dalio and the case for gold
Last night I was watching the following videos
US government has debt (to creditors in terms of bonds and its people in terms of different obligations). To meet these obligations they'll print dollars which in turn will devalue the dollar.
Question!
Is he saying that the dollar might lose confidence and value and that this in turn might lead investors and other governments to gold as the reserve currency status takes a hit due to the printing? If this is the case what is the dynamic/logic that leads from this to gold?
I am not asking if this will happen just if this is his logic.
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“I am considering the bet on gold with respect to his logic.”
Don’t forget gold is just a small part of his entire portfolio. Maybe 5% across gold and probably gold stocks.
Don’t forget that his timeframe is 10 years or more. He is prepared to lose for 5 years on gold, then let it recover and boom for 5 years. In the end he will annualize 8-14% on his bet after 10 years.
If you are prepared for a long trade then go for it if that’s what you want. Just want to let you know what you’re signing up for.
I was going to make this a comment, but it actually may help provide one possible answer to your question.
The main thing is this - the government can't just "print dollars". Instead, it has to issue marketable (debt) securities, that is, do something like create treasury bills, notes, bonds, etc. and sell them to willing buyers. If the government sells too much debt relative to what buyers are willing to purchase, interest rates will rise. Furthermore, it can't just do this whatever it likes, instead legislation must be passed authorizing the spending, and as seen by the periodic "debt ceiling theater" it has a limit on how much debt it can actually have without passing more legislation just to raise its own credit limit. These "limits" may seem largely symbolic or accounting "tricks", but they do serve as a check on the process.
Debt is not the main way the government gets money, of course. Debt covers deficits in spending, but the majority of the funds the government spends are from taxes. As the U.S. has been running a deficit for a number of years, the current way the government is paying back the money is actually similar to refinancing - taking on new debt to retire the old. People have been prophesying the "end" for at least 20-30 years now, and maybe someday they will be right, but this does not make for a good investment strategy.
Also, another thing to consider is that the U.S. is not the only country with debt. Relative to GDP, the U.S. is around 35th in the world, measuring either by total national debt or external debt, well below other countries such as the U.K. or Japan. As such, it is still possible for the value of the dollar and the economy as a whole to hold up better than expected, simply because it's the best option around compared to the alternatives.
The problem with this is that gold doesn't actually DO anything, it just sits there. In fact, holding it will most likely impose costs for security, even if it's only the cost of buying a safe to hold your collection of gold coins. So any change in the value of gold is related more to speculation than anything. If you look at the price in dollars over say the last 100 years, you'll see that it swings wildly: www.macrotrends.net/1333/historical-gold-prices-100-year-chart
Stocks, OTOH, represent ownership of companies that actually produce products. If the value of the dollar (or other currency) changes due to the government printing more money, the companies just raise their prices accordingly. So although individual companies may decrease in value, or even fail outright, overall (and in the long term) the stock market grows faster than inflation: www.macrotrends.net/1319/dow-jones-100-year-historical-chart
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