Investors Should Hedge Risk With Gold – Dalio

Release Date: 
Friday, August 11, 2017

Gold prices surged this week on safe haven buying as the threat of nuclear war with North Korea grew.

“Gold prices held steady after touching their highest in more than two months on Friday, as rising tensions between the United States and North Korea triggered safe-haven buying. ‘Much of the rally (in gold) is because of the increased safe-haven demand,’ said OCBC Bank analyst Barnabas Gan. Trump warned North Korea again on Thursday not to strike Guam or US allies, saying his earlier threat to unleash ‘fire and fury’ on Pyongyang if it launched an attack may not have been tough enough. Geopolitical risks can boost demand for assets considered safe-haven investments, such as gold ….” (“Gold steady near 2-month highs as N. Korea tensions lend support,” Economic Times, 8/11/17.)

Gold ended the week up $30.30, closing at $1,289.70. Silver prices closed at $17.20, up $0.86.

Investors Should Hedge Risk With Gold – Dalio
One of the world’s top hedge fund managers, Ray Dalio, wrote that investors should hedge their portfolio risks with gold.

“At least one prominent Wall Street investor seems to think a war with North Korea is a real possibility. Ray Dalio, chairman and chief investment officer at Bridgewater Associates, on Thursday urged investors to hedge their risks with gold amid rising geopolitical tensions.

“Dalio, in a LinkedIn post, observed that the dangers lurking under the surface appear to be more political than economic, making them difficult to gauge. ‘Prospective risks are now rising and do not appear appropriately priced,’ said the chairman of the largest hedge fund in the world. In his view, the two main risks are a military conflict between the U.S. and North Korea, and the possibility of a U.S. default on the failure to raise the debt ceiling … ““If the above things go badly, it would seem that gold (more than other safe-haven assets like the dollar, yen and treasuries) would benefit, so if you don’t have 5%-10% of your assets in gold as a hedge, we’d suggest that you relook at this,” said Dalio….” (“Dalio urges investors to buy gold to hedge against possible war with North Korea,” MarketWatch, 8/10/17.)

US, UK Sitting On Massive Credit Bubble Ready To Burst – Societe Generale
Societe Generale’s cross-asset strategist Albert Edwards published a global strategy report warning that the U.S. and UK are sitting on a massive debt bubble that will lead to another global economic collapse.

“Very recent data confirms slumping household saving ratios in both the US and UK.
This was last seen in 2007, just before the bursting debt bubble blew the global economy and financial system to smithereens. The Fed and BoE should surely hang their heads in shame having presided over yet another impending disaster. Why will politicians and the people tolerate this incompetence? Indeed they won’t.

“I’m genuinely getting tired of bashing the major central banks, but every day more evidence mounts that almost exactly the same debt excesses that caused The Global
Financial Crisis (GFC) in 2008, are present today. The UK Bank of England and US Federal Reserve deserve particular vilification for failing to remove the monetary punchbowl quickly enough just like the 2003-2007 period, allowing grotesque debt excesses to build …

“We have previously highlighted on these pages that we believe it will be the US corporate sector borrowing binge that will take centre stage in the next credit crisis. Until this latest SR data we had been less concerned about the situation in the household sector. US household mortgage borrowing, comprising some two-thirds of total household debt, remained subdued in the wake of the 2003-2008 boom and bust … But the Fed has had its way. QE has not only inflated corporate debt to grotesque levels, but finally the US SR has responded to the surge in household paper wealth that QE has produced … Why do you need to bother saving if interest rates are close to zero and house and stock prices are rising ….” (“Global Strategy Weekly, Societe Generale, 8/3/17.)

U.S. Sanctions Will Destroy The Dollar – Norman
Economist and currency trade Mike Norman believes that the U.S. sanctions against foreign governments will lead to removal of the U.S. dollar as the world’s reserve currency.

“The United States has been on a sanctions spree. Sanctions on Russia. Sanctions on North Korea. Sanctions on Iran. Sanctions on Syria. Sanctions on Venezuela. Sanctions proposed against China. Sanctions even obliquely placed on our allies in Europe as a result of sanctions on Russia. Sanctions, sanctions, sanctions …

"Do you know what the result of these sanctions will be? The dollar will get crushed. Something like 80% of all international transactions take place in dollars. The global financial system rests on a dollar architecture ... How long do you think the rest of the world will operate under such a risk? A risk that at any moment if you fall out of favor with the fools in Washington your entire economy and lifeline to the world's financial system can be shut down…?

“There is no doubt in my mind that these destructive and ill-conceived policies will lead to a collapse in the dollar. It may already be starting. We see Russia, Iran, China, and other nations starting to trade in local currencies and bypass the dollar. ..

"I knew that one day the dollar would lose its global reserve status because WE would do it to ourselves by some act of stupid policy. Before this new sanctions spree had begun I thought it would be because we would turn ourselves into the next China ...

"There is simply too much risk for the rest of the world to have the global financial system resting on dollars when at any moment, all or a portion of that system can be shut down … “I don't know what will replace the dollar -- gold, the Chinese yuan, bitcoin, the euro -- who knows? All I know is this: the dollar's days as the global reserve currency are over. It's the beginning of the end….” (“Sanctions Will Destroy the Dollar,” TheStreet, 8/8/17.)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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