'Buy Gold and a Bit of Bitcoin,' Says Billionaire Ray Dalio – Here's Why

Billionaire investor Ray Dalio is warning that a U.S. debt crisis could arrive "in three years, give or take two." To prepare, the Bridgewater Associates founder said in a LinkedIn post that investors should consider "underweighting debt assets like bonds, and overweighting gold and a bit of Bitcoin." More specifically, he suggested putting 10% to 15% of their portfolios in gold. His concern is that the U.S. government is spending much more than it collects, and the cost of servicing its debt keeps rising.

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Dalio estimates that the federal government will collect about $5.5 trillion this year and spend roughly $7.5 trillion. That leaves a $2 trillion gap. On top of that, interest costs are expected to reach around $1 trillion, while approximately $10 trillion of government debt needs to be refinanced.

That refinancing becomes more expensive when bond yields rise, and it doesn't help that long-term Treasury yields have recently climbed to multiyear highs. Japan, the largest foreign holder of U.S. government debt, has also sold Treasuries as it tries to support the yen.

The U.S. Treasury has responded by increasing purchases of long-term government bonds. However, the move has provided only short-term support so far. That fits with Dalio's view that the underlying problem cannot be solved simply by supporting bond prices.

Why Dalio Thinks Gold Could Benefit

Dalio's concern is what happens if investors become less willing to finance growing government deficits. If demand for Treasury bonds falls, the government may have to offer higher interest rates to attract buyers, which would increase government costs even further. Another option would be for the Federal Reserve to print money and buy government debt. Dalio argues that this could weaken the dollar and increase inflation, which would cause gold and Bitcoin to perform relatively well.

Nevertheless, Dalio believes that the longer-term solution is to cut the U.S. budget deficit from about 6% of GDP to 3%. He says that would require lower government spending and more tax revenue. Lower interest rates could also help reduce the cost of servicing the debt. Furthermore, he warned that countries such as China and Japan face similar financial pressures.

Is Gold a Buy?

Using TipRanks' technical analysis tool, the indicators seem to point to a positive outlook for the SPDR Gold Shares ETF (GLD). Indeed, the summary section pictured below shows that 14 indicators are Bullish, compared to three Neutral and five Bearish indicators.