Billionaire investor Ray Dalio warns U.S.-China conflict could become a ‘capital war’ that hits the dollar

Gold is rallying at the start of the week, as U.S.-China tensions and coronavirus fears mount, but the U.S. dollar is continuing to decline.

The precious metal hit a fresh record on Monday, as gold futures
climbed $39.60, or 2.1%, to $1,937.20 an ounce. Beijing retaliated on Friday after the U.S. ordered the closure of its consulate in Houston. China hit back by ordering the U.S. to close it own consulate in Chengdu. The spat between the world’s two largest economies spooked investors, but those concerns were somewhat shrugged off early on Monday ahead of a bumper week of earnings. U.S. stock futures
moved cautiously higher.

However, the dollar
slipped to its lowest level in almost two years.

In our call of the day, billionaire investor Ray Dalio warned the conflict between the U.S. and China could develop into a “capital war,” which would hurt the U.S. dollar.

“There’s a trade war, there’s a technology war, there’s a geopolitical war and there could be a capital war — that’s the reality,” Dalio said on Fox’s “Sunday Morning Futures.” “If you say by law, don’t invest in China or even possibly withholding the payment of bonds that the United States owes payment on in China, these things are possibilities and they have big implications, such as for the value of the dollar because premarket investors are not used to having those things dictated by the government,” he said. The Bridgewater Associates founder added that these difficult questions had to be “well-addressed” and it was a challenge for the government to get the policy right.

The U.S. dollar has slipped in recent months — the ICE U.S. Dollar Index, which measures the currency against a basket of six rivals, reached a 22-month low on Friday and fell lower again on Monday. On March 22, the index hit a more-than-three year intraday high.

When asked whether he was worried about the dollar, Dalio warned the U.S. was its “own worst enemy” and that he was concerned about the “soundness of our money.”

“You can’t continue to run deficits, sell debt or print money rather than be productive and sustain that over a period of time.

“If we don’t work together to do the sound things, to be productive, to earn more than we spend, to build the stability of our currency and build a good balance sheet, we are going to decline,” he added.

The chart


Gold prices hit record highs on Monday as the safe haven asset continued to attract investors. This chart from BDSwiss shows that gold has even outpaced negative yielding bonds in recent months, a relationship in which the precious metal has typically been lower over the past four years.

The markets

After closing 0.7% lower on Friday, the Dow Jones Industrial Average
looked set to open higher on Monday. U.S. stock futures climbed ahead of a big week for earnings, as investors put the mounting tensions between Washington and Beijing to one side for now. Dow futures were up 0.5%, or 125 points, S&P 500 futures climbed 0.5% and Nasdaq futures were 0.9% higher. European stocks recovered ground after earlier losses, with the Stoxx 600 index
down 0.1% in early trading. The German DAX
rose 0.3%, while the French CAC
fell 0.1%. Asian markets
were also mixed overnight.

The buzz

Big Tech will be in the spotlight this week, as Google parent Alphabet
and Facebook
all report earnings in the space of 24 hours on Wednesday and Thursday.

The U.K. government put Spain back on its unsafe list on Sunday, and other European countries warned against travel to the country as coronavirus hot spots emerged. Travelers arriving in the U.K. from Spain must now quarantine for 14 days.

Low-cost airline Ryanair
swung to a $215 million first-quarter net loss due to the impact of the coronavirus pandemic.

Software giant SAP
announced plans on Sunday to take its Qualtrics cloud software business public through an initial public offering. The German company bought Qualtrics for around $8 billion in 2018.

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