Dalio: Trade war may escalate into a capital war! US bonds may face a sell-off crisis, consider allocating gold for hedging

Dario warns at Davos that trade wars could escalate into “Capital Wars,” with the selling of US bonds and de-dollarization accelerating, shaking the dollar’s position and making gold a key safe-haven asset.

Ray Dalio, founder of the world’s largest hedge fund Bridgewater Associates, issued a stern warning at the 2026 World Economic Forum (WEF) in Davos, stating that as the Trump administration adopts more aggressive trade protectionism and sanctions, “Capital Wars” may become the next phase of conflict after trade wars.

Dalio analyzes that when trade deficits and trade wars escalate, they inevitably trigger capital flows, leading foreign holders to lose confidence in dollar assets. He worries that if geopolitical tensions persist—including among US allies—central banks and investors worldwide may reduce purchases or even sell US Treasuries. This could cause yields to soar and further undermine the dollar’s status as the global reserve currency.

From Trade War to Capital War Evolution

Dalio’s concept of “Capital War” refers to conflicts between nations shifting from the trade level (such as tariffs and quotas) to financial assets. In the context of the Trump administration’s “America First” policy and frequent use of tariffs, affected countries may no longer respond with reciprocal tariffs but instead turn to financial measures. This includes restricting capital inflows into the US or actively withdrawing funds from US markets. When a country fears its assets in the US could be frozen or sanctioned due to political reasons (such as past sanctions on Russia), “Capital War” has quietly begun. This trend of financial weaponization will significantly increase global market uncertainty.

US Bond Sell-off Crisis

The US has long relied on foreign capital to fill its fiscal deficit. If major holders like China, Japan, or Europe reduce their purchases due to security concerns or even sell off US bonds, it will disrupt supply and demand balance. According to bond market principles, falling bond prices will push yields higher, meaning borrowing costs for the US government and corporations will increase substantially. A high-interest environment will not only suppress US economic growth but may also trigger global liquidity tightening, causing severe shocks to emerging markets.

Danish pension fund AkademikerPension has already indicated that due to concerns over excessive credit risk caused by the Trump administration, it will liquidate US Treasuries by the end of this month.

De-dollarization and the Rise of Safe-Haven Assets

In response to potential Capital War risks, Dalio advises investors to reassess asset allocations and avoid over-reliance on a single currency or country. This aligns with recent trends of global central banks accelerating de-dollarization, shifting towards holding gold or other hard currencies to diversify risk. Dalio points out that historically, when major powers conflict, neutral and intrinsically valuable assets like gold tend to perform well. The recent record highs in gold and silver prices are direct reactions to market doubts about the dollar’s credit system. Investors should be alert to the fragility of traditional stock and bond allocations in extreme geopolitical environments.

Gold Hits New High, Dalio Recommends 5%~15% Allocation

He emphasizes that gold is an important safe-haven tool during financial stress, recommending its proportion in a typical portfolio to be between 5% and 15%.

Under the influence of a broad “sell US” trend, gold prices have soared, with spot gold (XAU) reaching $4,783 before deadline, setting a new record high.

• This article is reprinted with permission from: 《Chain News》
• Original title: 《Dalio Warns of Capital War: Trump Policies May Trigger US Asset Sell-off, Gold Should Be Allocated for Hedging》
• Original author: Florence