Ray Dalio: Gold is the Best Defense Against Looming Debt and Inflation Disasters

Ray Dalio is holding onto gold as a buffer against risks stemming from higher inflation and a potential debt crisis hitting the economy.

The billionaire investor and former Bridgewater Associates CEO has pointed to mounting debt balances around the world, with the US debt notching $34 trillion for the first time ever this year. Debt problems have also plagued China, Japan, and European nations — which poses a big risk for the currencies in those nations, he wrote in a post on LinkedIn this week.

"History and logic show that when there are big risks that the debts will either 1) not be paid back or 2) be paid back with money of depreciated value, the debt and the money become unattractive," Dalio wrote on Thursday.

When nations are deeply indebted, central banks are likely to print out more cash to pay off the debt, he noted, which is itself a problem.

"This prevents a big debt squeeze from happening by devaluing the money (i.e., inflation)," Dalio warned. "Gold, on the other hand, is a non-debt-backed form of money. It's like cash, except unlike cash and bonds, which are devalued by risks of default or inflation, gold is supported by risks of debt defaults and inflation."

That's the main reason Dalio says he has gold in his own investment portfolio, he added, calling it a "good diversifier" against the backdrop of high debt levels. 

Gold has been on a record-setting run in recent weeks. Investors have been keen to buy the precious metal amid the looming risk of recession and inflation remaining stuck at elevated levels, as well as fears of wider geopolitical turmoil out of the Middle East. 

Dalio has sounded the alarm on the US debt balance before. Previously, he warned markets of a coming debt crisis, which could end up sparking a balance sheet recession — a downturn that occurs when people and companies spend money to pay off their debts instead of stimulating the economy.

This article originally appeared on Business Insider