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Ray Dalio: Invest in Gold as Trump and North Korea Play Chicken

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May. 29 2018, Published 10:33 a.m. ET

Ray Dalio on US–North Korea tensions

In the previous part of this series, we looked at the rising geopolitical tensions between the United States and North Korea and how they’re affecting the equity markets. When global turmoil rises, investors generally prefer safe-haven assets such as gold (GLD) and stay away from riskier assets such as equities.

After President Donald Trump canceled the nuclear summit with North Korean leader Kim Jong-un on Thursday, May 24, the broader market S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA) fell, and gold rose. June futures contracts for gold rose 0.5% that day.

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Ray Dalio on gold

Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates, advised investors last August to invest in gold as tensions between the United States and North Korea were rising. He said, “Two confrontational, nationalistic, and militaristic leaders playing chicken with each other, while the world is watching to see which one will be caught bluffing, or if there will be a hellacious war. We can also say that if…things go badly, it would seem that gold (more than other safe haven assets like the dollar, yen, and treasuries) would benefit.”

According to Dalio, gold is going to do better than other safe-haven assets such as the dollar, the U.S. Treasury, and the yen if this geopolitical tension rises significantly or moves toward a war. The SPDR Gold Shares (GLD), which tracks the performance of gold, fell 0.3% on a year-to-date basis as of May 25. The broader market S&P 500 Index (SPY) rose 1.8% during the same period. In the past, we’ve seen gold rise significantly when any international turmoil affects the market movements.

In the next part of this series, we’ll analyze Dalio’s view on gaining exposure to all major economies.

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