Ray Dalio warns the world is 'on the brink of a capital war'

Legendary investor Ray Dalio warned that, amid intensifying geopolitical tensions and unstable capital markets, the world is "on the brink of a capital war."

According to CNBC on the 3rd (local time), Dalio, founder of Bridgewater Associates, said in an interview with CNBC that the world is precariously entering the realm of a capital war. A capital war refers to a situation in which money is weaponized through measures such as trade embargoes, cutting off access to capital markets, and using bond holdings as leverage.

"We are standing on the edge of a cliff," Dalio said, adding, "It doesn't mean we're already caught up in it, but we're on the verge of a capital war," and that "everyone is afraid of it, making it very easy to slide into a capital war."

As an example, he pointed to heightened tensions between the U.S. and Europe after the Trump administration pushed to bring Greenland, a Danish territory, under U.S. control. As this case shows, "Europeans holding U.S. dollar-denominated assets have also become fearful of sanctions, and the U.S.—a major debtor nation—has likewise begun to fear it may be unable to raise capital from Europe or that U.S. assets could be shunned."

According to Citibank data cited by Reuters, European investors accounted for 80% of foreign investors who purchased U.S. Treasuries from April to November last year. Typically, the largest buyers of U.S. Treasuries are Japan and China, but last year the share of European investors rose.

After taking office last year, U.S. President Donald Trump has repeatedly imposed and then withdrawn punitive tariffs, unleashing a series of hardline measures on both allies and non-allies alike. Those decisions have fueled volatility in financial markets.

"Capital—money—matters," Dalio said, adding, "Today, capital controls are being implemented globally, and you don't know who will be targeted; it's a situation that warrants serious concern," he noted.

"You can imagine similar situations in many cases today—between China and the United States, or between the United States and Europe," he said. "The flip side of a trade deficit is capital, and as long as capital imbalances exist, that capital can be used as a tool of war." Noting that historically, capital wars have involved measures such as foreign-exchange and capital controls, he added that some sovereign wealth funds and central banks are already making preparations in anticipation of such controls.

Amid these tensions, Dalio said that even if precious metal prices decline broadly, gold remains the best place to protect money.

He said it is a mistake to ask whether gold prices will rise or fall and whether one should buy; instead, he emphasized that central banks, governments, or sovereign wealth funds should "ask themselves what share of gold they should hold in their portfolios and maintain a set allocation." According to him, that is because gold is a highly effective diversification tool against other troubled assets in a portfolio.

"The most important thing in investing is to have a well-diversified portfolio," Dalio said, stressing that while gold performs exceptionally well during recessions and somewhat underperforms during booms, it remains "the most effective diversification tool."

Kim Jung-a, contributing reporter kja@hankyung.com