Ray Dalio is worried that global debt is putting major currencies at risk, making gold and other non-fiat options more appealing. He predicts a potential fiscal crisis in the U.S. that could upset the entire monetary system and recommends allocating 10% of investment portfolios to gold. Dalio pointed out the rising debt levels worldwide, saying they could devalue big currencies, which makes alternative investments look more attractive. He thinks U.S. government spending is unsustainable and believes a fiscal crisis is on the horizon, which could affect the global monetary system.

Global Debt and Currency Dependability

Dalio argues that large deficits make traditional currencies less reliable as stores of wealth, pushing investors to consider gold. The dollar has dropped over 10% this year, and other currencies are also declining against gold, which he sees as a key reserve asset. Discussing U.S. financial pressures, Dalio suggests the government might need to issue $12 trillion in debt, leading to market imbalances. He advises lawmakers to bring the deficit down to 3% of GDP, but political hurdles and Trump’s recent $3.4 trillion fiscal package complicate this effort. While Dalio believes the dollar will stay strong, he admits that China’s trading influence is growing. Ng Kok Song from Avanda Investment Management also raised concerns about U.S. debt and similar risks in other nations like France, Japan, and China. There’s significant stress on major currencies due to rising global debt. The U.S. national debt has now exceeded $36 trillion, pushing the debt-to-GDP ratio to a worrying 109%. This situation makes non-fiat assets, especially gold, more appealing as a shield against currency devaluation.

Opportunities and Strategies

In the coming weeks, there are chances to invest in gold derivatives, as the price of gold has already surpassed $2,550 per ounce this year. Given the reluctance for political action on deficits, buying call options on gold ETFs could be a smart play for potential gains. This approach allows investors to gain more exposure while seeking refuge from falling currency values. The weak dollar seems to be a consistent trend, with the Dollar Index (DXY) dropping from 105 to 94 in the first half of 2025. We might consider purchasing put options on funds tracking the dollar or using futures to short it against a mix of other currencies. Ongoing U.S. fiscal challenges suggest that the dollar will continue to weaken. The U.S. bond market is also facing supply and demand issues, as hinted by the low bid-to-cover ratio in last month’s 10-year Treasury auction. This suggests higher volatility in government debt, making options on long-term Treasury ETFs a useful strategy. We could use straddles to take advantage of expected price swings without choosing a specific direction. The current fiscal instability poses big risks for the overall equity markets, keeping levels of volatility high. The VIX has stayed above 20 for much of the year, showing persistent uncertainty among investors. Using put options on indices like the S&P 500 can be a wise move to protect long equity portfolios. These debt issues are not just American; other countries like Japan and France are experiencing similar fiscal problems. However, the dollar’s status as the main reserve currency means its instability can affect markets worldwide. This scenario could strengthen the argument for diversifying into other currencies, particularly as China’s role in international trade grows. Create your live VT Markets account and start trading now.

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