During his recent interview with WSJ, Ray Dalio explains why he sees gold as a great hedge right now. Gold is a reliable store of wealth when inflation erodes the purchasing power of fiat currencies. When central banks and governments monetize debt, leading to increased money supply and potential devaluation, gold serves as a stable alternative.

Here’s an excerpt from the interview:

Gold’s situation interests me, especially with real interest rates rising and gold also rising. What’s happening there?

We have a huge amount of debt and likely a monetization of debt. Historically, dealing with debt often leads to monetization rather than paying it back in hard money. For example, Japan’s Bank of Japan has bought many bonds and faces losses. Higher interest rates would cause significant losses, making bonds less attractive unless rates rise to an attractive real level. This dynamic has happened repeatedly in history.

In times of conflict and distrust, countries don’t want to lend to each other, fearing devalued repayments. This leads to alternative money forms like gold. Gold is almost a mirror image of bond values and serves as a safe haven. It’s the third largest reserve currency for central banks and is gaining popularity.

Gold acts as a hedge against conflict and currency value issues, not just a hot investment. I don’t advise people to run out and get a lot of gold, but it’s interesting as a stable investment.

You  can watch the entire interview here: