Ray Dalio on Gold, Cash Under the Bed

http://www.futureofcapitalism.com/2012/09/ray-dalio-on-gold-cash-under-the-bed

The founder and co-chief investment officer of the large, successful Bridgewater Associates hedge fund, Ray Dalio, spoke yesterday at the Council on Foreign Relations. From the transcript:

QUESTIONER: Andrew Gunlach (sp) -- (inaudible). You suggest, in a way, that this -- these crises are a little bit different because we're in an all fiat currency world. But isn't a constraint on the Fed, to Maria's (sp) question, the price of gold in the sense that it's a shadow currency? It doesn't vote, doesn't enforce things, but it certainly is a signal of something. I'm just curious at what your thoughts are.

DALIO: Yes. So I do -- gold is very much -- gold is a currency. Throughout the history -- I won't go on in length -- but money was like a check in the checkbook and what you would do is you would get your gold. And gold was a medium. And so gold is one of the currencies. So we have dollars, we have euros, we have yen and we have gold.

And if you get into a situation where there's an alternative, and in this world where we're looking what are the alternatives, and the alternative -- best alternative becomes clearly one thing -- something like gold -- there becomes a risk of that. Now, it doesn't have a capacity -- the capacity of moving money into gold in a large number is extremely limited.

So the players in the world that I -- you know, that, I don't know, I have contact with, who are -- who've got money -- really don't view gold as an effective alternative. But we always -- but it could be a barometer, and it is an alternative for smaller amounts of money. And if --

MODERATOR: Do you want gold?

DALIO: Oh, yeah. (Laughter.) I do. I think -- well, I think anybody -- let's be clear that I think anybody who doesn't have any -- there's no sensible reason not to have some -- if you're going to own a currency, if you don't -- it's not sensible not to own gold. Now, it depends on the amount of gold, but if you don't own, I don't know, 10 percent in -- if you don't have that and then it depends on the world, then you -- then there's no sensible reason other than you don't know history and you don't know the economics of it. (Laughter.)

But I -- well, I mean, cash -- so cash is an -- view it in terms of an alternative form of cash and also view it as a hedge against what the other parts of your portfolio are, because it's traditional to hedge financial assets. And so in that context, as a diversifier, as a source of that, there should be a piece of that in gold, is all I'm saying.

MODERATOR: OK.

DALIO: And -- but anyway, the -- what I'm talking about here in terms of your reflection is that, putting aside gold -- I don't want to draw an inordinate amount of attention to gold, but I would want to say that the -- in this world of liquidity and the world trying to find out what is the place, and in which also -- think about it. You know, for basically -- you get no interest rate --- you -- so the question is is cash under the bed better than treasuries? You're -- you could be quite close to cash under the bed being better than treasuries, right, because essentially you know you're going to get it back -- (chuckles) -- if it's under the bed and -- or in -- or in a bank. And you're not giving you any money on it anyway.

by Editor  |  Sep 13, 2012 at 9:31 am receive the latest by email: subscribe to the free futureofcapitalism.com mailing list