Billionaire investor Ray Dalio expressed concern on Tuesday that President Donald Trump's assertive political stance might ignite a new era of global financial conflicts. Dalio suggested that these tensions could prompt foreign governments and investors to reevaluate their investments in U.S. assets amid increasing unease and economic strains.
"Beyond trade deficits and trade wars lie capital conflicts," Dalio remarked on CNBC's "Squawk Box" during the World Economic Forum in Davos, Switzerland. "Conflicts can't ignore the prospect of capital wars. It's possible the inclination to invest in U.S. debt might diminish."
Dalio, head of Bridgewater Associates, one of the largest hedge funds globally, voiced concerns that countries with significant U.S. dollar and Treasury holdings might become hesitant to finance U.S. deficits if trust wanes. Concurrently, the U.S. continues issuing substantial debt, which could complicate the situation if confidence decreases, he noted.
"Holders of U.S. dollars, as well as the United States in need of it, express mutual concerns. So, when countries holding it are worried, and it's being produced in large quantities, it becomes a significant issue," Dalio explained.
On Tuesday, Treasury prices fell as investors contemplated new tariff threats from Washington. This revived fears of a trade war with Europe and led to reluctance toward U.S. assets. President Trump amplified rhetoric concerning Greenland, threatening tariffs on countries against selling the Danish territory to the U.S.
Dalio recalled historical instances where economic conflicts transcended trade, entering realms of capital flows and currency disputes.
"In geopolitical conflicts, even allies hesitate to hold each other's debt, opting for hard currencies. This is a logical and repeated pattern throughout global history," he commented.
Reaffirming the value of diversification, Dalio advised against over-reliance on a single asset class or country. He recommended gold as a critical hedge during financial stress, suggesting it should comprise 5% to 15% of an average investment portfolio.
"Gold performs well when other assets falter. It's an effective diversifier," Dalio stated.
Spot gold hit a historical peak of $4,689.39 on Tuesday as investors sought safe-haven assets amid rising tensions.