Dalio warns of a capital war: Trump's policies may trigger a sell-off of dollar assets; consider allocating gold for hedging

The world’s largest hedge fund, Bridgewater Associates founder Ray Dalio, 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 analyzed that when trade deficits and trade tensions escalate, it will inevitably trigger capital flows, leading to a decline in foreign holders’ confidence in dollar assets. He expressed concern that if geopolitical tensions persist, including among U.S. allies, central banks and investors in various countries may reduce purchases or even sell off U.S. Treasuries. This would cause U.S. bond yields to soar, further undermining the dollar’s status as the global reserve currency.

From Trade War to Capital War Evolution

Dalio’s concept of “Capital War” refers to the escalation of conflicts between nations from the realm of commodity trade (such as tariffs and quotas) to financial assets. Against the backdrop of the Trump administration’s “America First” policy and frequent use of tariffs as a weapon, affected countries may no longer respond solely with reciprocal tariffs but may turn to financial measures. This includes restricting capital inflows into the U.S. or actively withdrawing funds from the U.S. market. When a country fears that its assets in the U.S. 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 uncertainty in global markets.

U.S. Bond Sell-Off Crisis

The U.S. has long relied on foreign capital to fill its fiscal deficit. If major holders of U.S. debt, such as China, Japan, or Europe, reduce their purchases due to security concerns or even sell off their holdings, it will disrupt the supply and demand balance. According to bond market principles, falling bond prices will push up “Yields,” meaning the borrowing costs for the U.S. government and corporations will increase substantially. A high-interest-rate environment will not only suppress domestic economic growth but may also trigger a global liquidity crunch, causing severe shocks to emerging markets.

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

De-dollarization and the Rise of Safe-Haven Assets

In response to potential capital war risks, Dalio recommends investors reassess asset allocation to avoid over-reliance on a single currency or country. This echoes the recent trend of accelerating de-dollarization by central banks worldwide, shifting towards holding gold or other hard currencies to diversify risk. Dalio pointed 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 cautious of the fragility of traditional stock and bond allocations under extreme geopolitical environments.

Gold Reaches New Highs, Dalio Recommends 5%~15% Allocation

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

Affected by the全面“Sell US” movement, gold prices have soared, with spot gold (XAU) surging to $4,783 before deadline, hitting a new all-time high.

This article, Dalio warns of Capital War: Trump policies may trigger a sell-off of dollar assets, and recommends allocating to gold for hedging, first appeared on Chain News ABMedia.