Fiscal Uncertainty Alarms Hedge Fund Legend

As financial markets churn against a backdrop of economic uncertainty that seems to grow every day, gold continues to demonstrate impressive resilience in its capacity as a perceived safe-haven asset. Many retirement investors may see that as particularly reassuring given the recent — and rather stark — warning about America’s fiscal uncertainty issued just days ago by storied money manager Ray Dalio.

Dalio’s cautionary message about fiscal instability comes as investors already have their hands full managing financial markets’ reaction to tariff uncertainty.

Markets began to exhibit increased fragility at the beginning of February, when President Trump first announced that a wave of tariffs likely were coming in short order, including substantial duties on imports from Canada, Mexico, and China … America’s three largest trading partners.

From that period through Wednesday of this week, the Dow Jones Industrial Average fell roughly 5% while the tech-heavy Nasdaq Composite tumbled more than 8%. But over that same particularly volatile month, gold managed to rise by nearly 3% … which suggests those investors who saw fit to add gold to their portfolios prior to the onset of tariff-based volatility may be enjoying at least a measure of relief at the moment.

Of course, gold’s most current display of durability is just the latest in what has become a long line of strong performances that, strung together over the last three years, have made the yellow metal one of the best-performing assets in recent history.

Gold’s Strength as an Asset Lies in Its Safe-Haven Qualities

Not only did gold finish ahead of mainstream assets and indexes on a price-return basis for calendar year 2024 by rising 29%, but the metal’s near-60% surge since the beginning of 2022 puts it well ahead of the world’s most popular equities indexes.

As for why gold has been doing so well over this period, analysts attribute the steady upward momentum largely to two factors:

• heightened economic uncertainty

• geopolitical uncertainty

These conditions historically have prompted investors to seek out assets revered for their potential as safe havens.

Again, ongoing tariff drama has been seen as especially helpful to gold right now, in part because it represents a clear combination of the economic and geopolitical uncertainty viewed as being among gold’s most foundational drivers.

“Gold and Silver Continue to Do Well” in Current Climate

“The implementation of tariffs brings a high level of uncertainty to the markets, and safe-haven products like gold and silver continue to do well,” David Meger, director of metals trading at High Ridge Futures, noted on Tuesday.[1]

Economic and geopolitical uncertainty also have been cited as among the reasons the world’s central banks have been buying gold so aggressively over the last several years, something else that is believed to have helped support gold over that period. Central bank gold demand has remained at or near record levels for the last three years and is projected to top 1,000 metric tons for the fourth straight year in 2025.

Earlier this week, Ole Hansen, head of commodity strategy at Saxo Bank, reiterated his institution’s recently raised price target for gold of $3,300, and suggested that central bank demand could play a key role in helping to push the metal to that price level.

“The outlook for gold remains supportive, particularly given the limited depth of the latest correction, which signals strong demand despite selling pressure from technically focused traders,” Hansen said. “In addition to diversification and safe-haven demand, gold will likely continue to benefit from central bank buying as fiscal debt concerns persist.”[2]

National Debt Projected to Soar 63% in the Next Decade

And, boy, do fiscal debt concerns ever persist.

• According to the Congressional Budget Office (CBO), the gross federal debt, currently a little more than $36 trillion, is projected to rise to nearly $60 trillion by 2035 … an increase by roughly 63% in just the next decade.[3]

• The CBO projects that the ratio of federal debt held by the public to GDP could rise from just under 98% as of the end of fiscal year 2024 to nearly 120% by the end of 2035.[3]

As you might expect, projections of the annual deficits that serve as the building blocks of the federal debt are no less concerning.

• The CBO expects annual deficits to average – average – more than $2.1 trillion per year from now through 2035, and the deficit-to-GDP ratio to reach roughly 6% by 2030 and remain at that level through at least 2035. For perspective, note that the deficit-to GDP over the last half-century has averaged a significantly lower 3.8%.[3]

One prominent figure who’s made a point of sounding the alarm about the fiscal outlook that Ole Hansen and others believe to be a driving force of gold right now is Ray Dalio, founder of Bridgewater Associates, the world’s largest hedge fund.

Ray Dalio on Bloomberg Podcast: Expect Continued Fiscal Deterioration

During an appearance on an edition of Bloomberg’s “Odd Lots” podcast released Monday, Dalio made clear his view that fiscal conditions which have been poor for an awfully long time are continuing to deteriorate. And that if they aren’t changed in extremely short order, the current fiscal trajectory that the Treasury Department and even Federal Reserve Chair Jerome Powell say is unsustainable effectively will ensure that the nation is overcome by a debt crisis.

As one of the world’s savviest investors, Ray Dalio’s opinion of America’s fiscal situation and its potential consequences is not something to be taken lightly. In that spirit, then, we’re going to look next at what the hedge fund legend had to say on the “Odd Lots” podcast.

And as it happens, Dalio also thinks in the era of unchecked fiscal excess, that a certain yellow metal may be the asset to which investors — including retirement savers — should turn for protection.

Ray Dalio: U.S. Faces Fiscal “Heart Attack” If Debt Course Isn’t Changed Immediately

When it came to the nation’s current fiscal outlook, Dalio certainly did not mince words during his “Odd Lots” appearance, suggesting the nation was facing an unmitigated debt crisis at some point in the near future if deficit spending is not brought back under control.

Comparing the worsening of the nation’s fiscal profile to heart disease, Dalio said:

When debts rise relative to the incomes that are needed to service the debt, it’s like plaque building up in the circulatory system.[4]

And Dalio sees the same outcome for the U.S. if enough debt accumulates as he does for a human who suffers from an excess accumulation of actual plaque in the arteries.

“It’s like a heart attack,” Dalio said.[5]

And like a heart attack, there’s no way to know, for sure, when a debt crisis might actually befall the country.

“I can’t tell you exactly when it will come,” Dalio admitted, but rather shockingly, he suggested the “inflection point” could be within a handful of years.[5]

“You’re getting closer. My guess would be three years, give or take a year, something like that,” he suggested.[5]

Dalio suggests that among the more revealing gauges of fiscal excess that bear watching is demand for U.S. debt among global investors.

U.S. Could Be Approaching “Debt Death Spiral”

“When you reach the part of the cycle that you have to borrow money to pay debt service, and the holders of those bonds say it’s a risky situation — in the private debt market, we call that the debt death spiral,” Dalio said.[5]

A little earlier, I mentioned that the CBO is projecting the deficit-to-GDP ratio to stay in the neighborhood of 6% through at least 2035. A 6% ratio is an extraordinary level, and one that historically has been characteristic only of years marked by crisis or war.

Oh, and by the way: We’re already two years into what the CBO suggests could be a string of 6% deficit-to-GDP ratios through the foreseeable future. The $1.7 trillion deficit from fiscal year 2023 landed at a ratio of 6.2%, while 2024’s $1.8 trillion deficit … the third-highest in history … represented a stunning 6.4% of GDP that year.

Dalio Says Fiscal Uncertainty Solution Is Tax Increases and Spending Cuts

On the “Odd Lots” podcast, Dalio said that President Trump should act promptly, through a mix of tax increases and spending cuts, to get the deficit-to-GDP ratio down to just 3%.

“If you don’t do that,” Dalio warned, “then you own it…you have to take responsibility for the consequences.”[5]

If efforts at reducing the deficit in any meaningful way prove unsuccessful, Dalio suggests that perhaps the next step to avoiding an outright default could be a restructuring the nation’s debt:

You could see that the government could say that they’re going to restructure the debt; they won’t say it’s a default, they will say ‘under this policy we’re going to be better off.’ We won’t change what you’re going to get paid, but we’re going to spread it out over more years, and it’ll be a restructuring of the debt.[5]

Adopting an even more ominous tone, Dalio suggested, “If it gets bad, you could have more extreme things happen.”[5]

But in a world that is as hyper-perceptive and hypersensitive as ours has become, debt restructuring likely would be seen as what it surely is: a kinder, gentler version of debt default … and one that likely wouldn’t be received any better.

If you are concerned about the multitude of risks that could affect your retirement security, reach out to us and request our free guide to gold IRAs.

Fund Manager Gundlach: “In the Upheaval to Come, Few Are Likely to Be Spared”

In a recent piece for The Economist on America’s ever-worsening fiscal woes, Jeffrey Gundlach, founder of asset manager DoubleLine Capital, said as much, noting that “there is the real possibility of a quasi-default by the Treasury, through debt restructuring beyond what today’s consensus would dare to contemplate,” and added:

In the upheaval to come, few are likely to be spared.[6]

Dalio’s suggestion that real trouble could strike as soon as in the next three years may seem particularly alarmist to some. But the truth is that as our debt strays deeper into uncharted territory, how the economy and markets will react to that — and when they abruptly decide enough is enough — remains very unclear.

“Concern about a fiscal crisis in the near term is not currently apparent in financial markets,” the CBO noted last year. “However, financial markets do not always fully reflect all potential risks, and the risk of a fiscal crisis could change suddenly in the wake of unexpected events. For example, a rise in interest rates that persisted for an extended period could cause investors to become concerned about the government’s fiscal position over the long term.”[7]

The message seems clear: The nation’s fiscal outlook is, at the very least, concerning.

And as analyst Ole Hansen and other strategists have suggested, growing fiscal uncertainty is a principal driver of gold strength right now. And not just right now.

Fiscal Uncertainty Has Been Fed by Rising National Debt

Many analysts have considered the nation’s increasingly troubling fiscal outlook to be a principal catalyst of gold throughout this current bull run. A year ago, when the metal was roughly $1,000-per-ounce less than it is currently but powering upward, the national debt, at that time, was rising at a stunning pace of around $1 trillion every 100 or so days. Referring specifically to gold, Bank of America strategist Michael Hartnett suggested to clients:

Little wonder ‘debt debasement’ trades closing in on all-time highs.[8]

The national debt isn’t climbing quite as fast now … but it’s still surging, rising roughly $2 trillion in the last 12 months and providing investors with another compelling reason to keep safe-haven assets close at hand.

As it turns out, Ray Dalio himself is one of those investors. The wise hedge fund manager, who seems as concerned as anyone about the nation’s fiscal outlook, thinks gold could be useful in helping portfolios to survive the fiscal “heart attack” he apparently believes is a real possibility.

Let’s look at just why he thinks so.

Fiscal Uncertainty Serves to Support Gold, Says Dalio

As you would expect from one of the world’s most renowned fund managers, Ray Dalio isn’t “merely” sounding the alarm on the debt crisis he believes could arrive as soon as a handful of years from now; he also is preparing for it … personally.

Last year, Dalio penned a brief essay in which he outlined gold’s value as a hedge against what essentially has become a debt-based monetary system, making the case for owning gold under present conditions.

Gold … is a non-debt-backed form of money,” Dalio said. “It’s like cash, except unlike cash and bonds, which are devalued by risks of default or inflation, gold is supported by risks of debt defaults and inflation [emphasis added]. It is held by central banks and other investors for this reason.[9]

Clarifying further, Dalio added:

When the financial system is working well—which is when there aren’t debt and inflation crises and the borrower-debtor governments printing debt-backed monies are meeting their obligations and paying their interest without printing and devaluing money—debt assets and other financial assets are good assets to hold; on the other hand, when the reverse is the case, gold is a good asset to own.[9]

And then he said:

That’s the main reason that gold is a good diversifier and why I have some in my portfolio.[9]

Fiscal Excess Message Is Strengthening and Making a Case for Gold

As financially and economically savvy as Ray Dalio obviously is, his speculation that a debt crisis potentially is a mere handful of years away is just that, speculation.

But perhaps the bigger issue is that Dalio’s publicly expressed concern is just the latest alarm about America’s fiscal unsustainability sounded by a highly credible source. Dalio’s voice joins those of the Penn Wharton Budget Model, the Congressional Budget Office, the Government Accountability Office, Fed Chair Jerome Powell and others that recently have made clear their own opinions that the U.S. faces enormous risks if the excess continues.

Taken together, their assessments might be seen as a credible warning that this level of fiscal unsustainability can’t go on; and also seen as another sound basis, aside from all the other sound bases right now, for owning gold as a hedge – just as Ray Dalio himself does.

To learn more about how a gold IRA could help protect your hard-earned retirement savings from debt distress, request a free guide here.