Ray Dalio, one of the most influential hedge fund managers of the last few decades and founder of Bridgewater Associates, continues to stand by a thesis that many investors periodically question: gold remains one of the “safest forms of money,” even after sharp price collapses and periods of extreme volatility.
His stance may sound counterintuitive to those who only see gold as a speculative asset whose price can soar and then crash. Yet Dalio’s view is rooted not in short‑term price moves, but in the role gold has played across centuries of economic booms, busts, currency crises, and political upheavals.
Why Dalio still calls gold “the safest money”
When Dalio speaks of gold as “the safest money,” he is not suggesting that its price will always go up or that it is free from volatility. Instead, he is emphasizing three key ideas:
1. Gold is no one’s liability
A dollar, euro, or bond is a promise issued by a government or a central bank. Its value depends on fiscal discipline, political stability, and the willingness of institutions to honor their obligations. Gold, by contrast, is a physical asset that does not represent anyone else’s debt. It does not require a central bank, a company, or a government to remain solvent in order to retain some level of value.
2. Gold tends to hold purchasing power over long periods
Over decades and centuries, gold has often preserved real purchasing power better than many fiat currencies, especially those hit by inflation, devaluation, or outright collapse. While its price in nominal terms can crash, over long stretches it often reflects underlying monetary conditions and loss of trust in paper money.
3. Gold is a hedge against monetary and geopolitical extremes
Dalio repeatedly warns about “paradigm shifts” – periods when the usual rules stop working, such as high inflation after years of low inflation, debt crises, or currency wars. In such environments, risk assets can suffer simultaneously, and traditional diversification can fail. Gold, in his framework, is one of the assets that historically performs relatively better when confidence in paper money or institutions erodes.
How a “safest money” can still crash
The phrase “safest money” can be misleading if interpreted as “never loses value.” Gold can and does experience:
– Rapid drawdowns when investors rush out of safe‑haven trades
– Profit‑taking after strong rallies
– Selling pressure when interest rates rise and yield‑bearing assets become more attractive
– Periods where macro fears subside and money flows into equities instead
A “historic crash” in gold prices may reflect a resetting of expectations, reduced fear, or shifts in central bank policy. From Dalio’s perspective, this does not invalidate gold’s structural role in a portfolio. Volatility in the short run can coexist with resilience in the long run. In other words, something can be “safe” in a systemic, multi‑decade sense and still be very unstable over weeks or months.
Gold vs. fiat currencies in Dalio’s framework
Dalio often analyzes economies through the lens of long‑term debt cycles. As countries accumulate high levels of debt, they eventually face unattractive choices: default outright, impose austerity, or quietly reduce the real value of debt through inflation and currency devaluation.
In that context:
– Fiat currency can be printed, diluted, and devalued. Holders bear the risk that their purchasing power is eroded by policy decisions.
– Gold cannot be created at will by any central bank. Its supply grows slowly, through mining, and its value is driven more by market demand than by political necessity.
Under “normal” conditions, strong fiat currencies can comfortably outperform gold in terms of convenience, yield (interest), and stability. But when trust in the monetary system comes into question, gold tends to reassert itself as a store of value. That is the core of Dalio’s argument: gold is an insurance policy against the breakdown or debasement of the system, not a bet on everyday economic optimism.
Why crashes don’t change the long‑term thesis
A historic crash in gold can be alarming to anyone who bought near the top. However, Dalio would argue that:
– The underlying functions of gold haven’t changed.
A sharp move in price does not alter the fact that gold remains scarce, widely recognized, and independent of government balance sheets.
– Crashes often reset future return potential.
When sentiment becomes overly bullish, prices overshoot. A correction brings prices closer to levels aligned with fundamentals and long‑term demand (from central banks, investors, jewelry, and industry).
– Long‑term hedges are not judged by one cycle.
Just as an insurance policy can feel “wasted” in years without accidents, hedges like gold may look unnecessary or painful when markets are calm or when they drop. Their real value appears in exceptional stress events.
From this perspective, a historic crash may be part of the normal life cycle of a volatile asset that plays a stabilizing role over multiple decades and across wildly different macro regimes.
Portfolio principles behind Dalio’s defense of gold
Dalio is known for popularizing the concept of a “balanced” or “all weather” portfolio – a structure designed to perform reasonably well in a wide range of economic environments: growth, recession, inflation, and deflation.
Within that philosophy:
– Gold is not the core growth engine; that role is played by equities and productive assets.
– Gold serves as a diversifier and hedge against scenarios where both stocks and bonds struggle, such as high inflation with stagnating growth (stagflation) or severe geopolitical shocks.
He typically advocates that investors hold:
– A mix of assets that perform in different conditions
– A modest, but meaningful share in gold or gold‑related instruments
– A mindset that prepares for both good and bad economic weather, rather than assuming the recent past will continue indefinitely
Gold’s inclusion is based less on a belief that it will outperform everything else forever and more on the observation that it behaves differently at exactly the times when other assets are under extreme stress.
The psychological barrier: volatility vs. safety
Many investors equate “safety” with a calm line on a price chart. Yet safety, in Dalio’s sense, is more about:
– Survivability through extreme events
– Preservation of value when systems are under pressure
– Reducing exposure to single points of failure (like one country’s currency or one central bank’s policy)
Gold fails the “smooth ride” test – its price can behave erratically. But it often passes the “end of the game” test better than paper money, especially in environments of hyperinflation, capital controls, or severe political turmoil. To Dalio, that trade‑off is worth considering.
How regular investors can interpret this stance
For individuals, Dalio’s defense of gold as “the safest money” does not mean:
– Move everything into gold
– Trade aggressively on every price swing
– Expect gold to be a quick path to wealth
More practical implications are:
1. Treat gold as long‑term insurance, not a short‑term speculation.
If used at all, it should typically be a consistent part of a diversified portfolio, not an all‑in bet.
2. Accept that insurance has a cost.
Just as you pay premiums on a policy you hope to never use, holding gold can feel costly when other assets are booming and gold is lagging or dropping.
3. Size the allocation realistically.
Many long‑term investors who share a similar philosophy keep a moderate percentage of their net worth in gold or related instruments, enough to matter in a crisis but not enough to dominate their financial future.
4. Think in decades, not days.
If you are using gold as a hedge against deep, systemic problems, then short‑term crashes are part of the noise, not the signal.
Gold in the age of digital assets
The rise of cryptocurrencies has led some to argue that digital assets have replaced gold as the new hedge against monetary disorder. Dalio acknowledges the innovation in digital currencies but tends to draw a distinction:
– Cryptocurrencies are young, heavily speculative, and highly dependent on regulatory environments and technology infrastructure.
– Gold is old, deeply embedded in central‑bank reserves and cultural traditions, and independent of any single technology.
This does not necessarily make one “better” than the other for all investors, but in Dalio’s framework, gold remains the veteran store of value with a long track record of surviving regime changes, wars, currency collapses, and debt crises. That historical resilience is a big part of why he still calls it one of the safest forms of money.
What a historic crash can teach investors
Instead of seeing a sharp fall in gold as a verdict against its role, it can be more productive to ask:
– Did the crash change the fundamental properties of gold?
– Or did it mainly reveal investor sentiment swings, policy changes, or temporary fear unwinding?
From a long‑term perspective, a crash can:
– Shake out overly leveraged and speculative positions
– Offer entry points for those who view gold as a long‑term hedge
– Remind investors that no asset, not even a “safe” one, is immune to human psychology and market cycles
Dalio’s consistent message is that gold should be evaluated within a broad macro and portfolio context, not solely through the lens of recent price action.
Bottom line
Ray Dalio’s defense of gold as the “safest money” is not a denial of its volatility or its capacity for dramatic crashes. Instead, it reflects a deeper judgment about:
– The vulnerability of fiat currencies in long debt and inflation cycles
– The importance of holding assets that are outside the control of any single government or central bank
– The need for diversification that can withstand rare but devastating economic shifts
In that worldview, a historic crash in gold is a chapter, not the epilogue. The asset can be bruised in the short term and still remain central to a long‑term strategy for preserving wealth through economic and political extremes.