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Sunday, November 28, 2021

Ray Dalio’s Theory: The 10 Yr Bull Market in Gold


The SPDR S&P 500 ETF Trust (NYSE:SPY) has rallied 37.5% in the past 3 years, while the SPDR Gold Trust (NYSE:GLD) has lagged, gaining just 5.7% in that frame.

Now comes Bridgewater Associates hedge fund manager Ray Dalio, who has recently said gold could be gearing up for a “Gold Bug” decade of returns.

Paradigm Shift: in a post reported here last week, Mr. Dalio discussed paradigm shifts in financial markets. He said these shifts tend to occur once every 10 yrs or so, and the price of gold tends to correlate with the shifts.

Gold outperformed in the 1970’s after President Richard Nixon took the US off the gold standard. In the 1980’s and 1990’s, gold lagged while the S&P 500 gained 2,500%. In the early 2000’s prior to the financial crisis, gold tripled in value. From Y’s 2008 to 2010, gold prices gained just 10%.

Today, Mr. Dalio sees another paradigm shift in global economics.

He said massive sovereign debt loads will ultimately force central banks to print more paper money, which will make dealing with their debt loads more manageable; aka devalue the fiat money.

Given gold is a global store of value and has a limited supply, he said investors and central banks will likely view it as an effective hedge against currency inflation.

Mr. Dalio said the world is currently positioned extremely long on “risky assets,” such as stocks, leveraged private equity and venture capital. He said these assets are providing historically low returns relative to cash.

“I think these are unlikely to be good real returning investments and that those that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold,” he wrote. “I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio.

True, gold pays no dividends, but it is an effective hedge Vs USD. In that context, both Shayne and I believe Mr. Dalio’s Bullish thesis on gold makes a whole lot lot of sense.

We are on the look out for a well managed junior US miner where we will get huge leverage on a long life trend strike in the US.

We agree that the world’s central banks are the natural buyer, they have begun to increase their holdings and have a lot of power to add to this trade.

In the past 3 months, Mr. Dalio’s thesis is playing out on the market. The GLD fund is up 11.9%, while the SPY ETF is up just 2.7% overall.

HeffX-LTN’s overall technical outlook for GLD is Bullish too Very Bullish in here, all of our Key indicators are flashing Very Bullish.

Stay tuned…

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