Ray Dalio, the founder of Bridgewater Associates, recommends putting 15% of a portfolio into long-term assets like gold and bitcoin. On CNBC’s Master Investor Podcast, he voiced a preference for gold but said it’s ultimately up to individual choice. Dalio highlighted the fragile economic situation in the U.S., mainly because of its rising national debt. He predicted that the U.S. government would need to issue nearly $12 trillion in Treasuries next year to manage this debt. He warned that not only the U.S. but also other Western countries are stuck in a “debt doom loop.”

Positioning for Hard Assets

With concerns about money losing value, we believe that derivative traders should prepare for rising prices of hard assets. This means looking into long-term call options on both gold and bitcoin to profit from potential gains while controlling risk. We see this as a bet on increased market volatility and a move toward scarce resources. Dalio’s preference for gold is timely, as the price has recently climbed to nearly $2,300 an ounce, close to its all-time highs. We can express this outlook by using options on the SPDR Gold Shares (GLD) exchange-traded fund. Historically, gold has been a solid hedge during times of significant government debt, which matches the current situation. For bitcoin, recent approvals of spot Bitcoin ETFs have changed the market landscape. For instance, BlackRock’s IBIT fund has attracted over $17 billion since its launch in January 2024, indicating high institutional interest. We can leverage this trend with CME Group’s bitcoin futures contracts.

Debt Doom Loop Strategy

The core issue is the “debt doom loop,” as the U.S. national debt has now surpassed $34.6 trillion. A straightforward way to trade this view is by expecting higher interest rates through short positions in Treasury futures. Another method to profit if bond prices drop from increased government debt is by purchasing put options on a long-duration Treasury bond ETF like the iShares 20+ Year Treasury Bond ETF (TLT). These alarming economic forecasts point to a period of substantial market upheaval ahead. Therefore, we should consider preparing for a surge in overall market volatility. Buying calls on the CBOE Volatility Index (VIX) could effectively hedge against the kinds of systemic risks we’ve discussed. Create your live VT Markets account and start trading now.

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