Legendary investor Ray Dalio has issued a stark warning that the world is “on the brink” of a capital war during his appearance at the World Governments Summit in Dubai. He highlighted the potential for geopolitical tensions to escalate into financial conflict, with measures such as trade embargoes and capital controls being on the horizon.
During the gathering, Dalio expressed concerns about mutual fears between Europe and the United States, particularly around the possibility of sanctions or restricted access to capital markets. “We are on the brink,” Dalio noted, emphasizing that while a capital war hasn’t started, the situation is precariously close.
Why Dalio’s Warning Demands Immediate Attention
Dalio’s remarks come amid heightened tensions over President Donald Trump‘s international policies, including attempts to acquire Greenland and imposing tariffs. These actions have already caused market volatility and reflect the underlying fears of a capital imbalance between major economies.
“Capital, money, matters. We’re seeing capital controls taking place all over the world today, and who will experience that is questionable. So, we are on the brink, that doesn’t mean we are in a capital war now, but it means that it’s a logical concern,” Dalio said.
He pointed out that European investors have been significant buyers of U.S. Treasurys, accounting for 80% of foreign purchases between April and November. This underscores the interconnectedness of global financial systems and the potential risks involved.
How Geopolitical Tensions Shape Investment Strategies
As CNBC noted last week, Dalio drew historical parallels, referencing the U.S.’s sanctions on Japan before World War II as an example of how economic measures can precede greater conflicts. He suggested that similar dynamics could unfold between the U.S. and China or Europe.
In response to these concerns, Dalio stated that central banks and sovereign wealth funds are already making provisions for potential capital controls. This preparation indicates a growing awareness of the risks posed by geopolitical tensions to global capital markets.
The Case For Gold Amid Capital Market Uncertainty
Amid these uncertainties, Dalio reiterated his belief in gold as a reliable hedge against market volatility. “It doesn’t change by the day,” he said, underscoring that gold’s role as a diversifier remains critical despite recent price fluctuations.
Dalio advised that central banks and investors should consider maintaining a percentage of their portfolios in gold, as it provides a safeguard during economic downturns.
“Because gold is a diversifier, when the bad times come along it does uniquely well,” he added, emphasizing the importance of a well-diversified portfolio.
