Dalio Warns: The World Is on the Edge of a "Capital War"

On Tuesday, February 3rd, local time, legendary investor and Bridgewater Associates founder Ray Dalio warned that the world is on the brink of a “capital war” amid escalating geopolitical tensions and highly volatile capital markets.

Dalio stated at the World Government Summit in Dubai that the current situation is approaching the critical point of a capital war.

The so-called capital war refers to the weaponization of funds through trade embargoes, cutting off access to capital markets, or using debt ownership as a pressure tool.

“We are standing on the edge,” Dalio said. “This means we haven’t truly entered a capital war, but we are very close, and crossing this boundary would be very easy because there is mutual fear among all parties.”

Dalio mentioned recent threats by the Trump administration against Greenland, noting that European investors holding large amounts of dollar-denominated assets are worried about potential sanctions; meanwhile, the U.S. may also have reciprocal concerns, such as being unable to access necessary capital or secure funding from Europe.

According to research from Citigroup, between April and November last year, European investors accounted for up to 80% of foreign purchases of U.S. Treasury bonds.

“Capital, funds, are crucial,” Dalio said. “We are witnessing capital controls emerging worldwide, and who will ultimately bear these controls remains uncertain. So we are on the edge — this doesn’t mean we are already in a capital war, but it is a logical concern.”

Since returning to the White House last year, President Trump has imposed a series of punitive tariffs on trading partners, which have been adjusted or withdrawn multiple times, causing significant volatility in financial markets.

Dalio added that, based on historical experience, capital wars are often accompanied by foreign exchange and capital control measures, and institutions such as sovereign wealth funds and central banks have begun to prepare for such controls.

Dalio further pointed out that historical capital wars typically revolve around “major conflicts.” He cited the example that before the U.S. officially entered World War II, it imposed sanctions on Japan, escalating the adversarial relationship between the two countries.

Gold Remains an Important Safe-Haven Asset

Amid the aforementioned tensions, Dalio stated that despite historic sell-offs and broad declines in precious metals, gold remains the best place to store funds.

Gold and silver experienced rare crashes last Friday and this Monday, but signs of stabilization appeared on Tuesday.

When asked whether recent turbulence would shake gold’s status as the safest asset, Dalio replied, “That doesn’t change over time.”

“Gold prices are up about 65% compared to a year ago, but have fallen about 16% from their peak. I believe a common mistake people make is obsessing over whether gold will rise or fall in the short term, or whether to buy now,” he said.

Dalio added, “On the contrary, perhaps central banks, governments, or sovereign wealth funds should consider how much of their portfolios should be held in gold and maintain that proportion long-term, because it provides very effective diversification for weaker parts of the portfolio.”

He stated, “Because gold is a diversifier, it tends to perform especially well during difficult times, and relatively poorly during prosperity, but it remains a very effective diversification tool. I believe the most important point is to have a highly diversified investment portfolio.”

(Article source: Caixin Global)