When gold is declared
Bill Bonner, Bonner and Partners
30, 2015, 8:02 PM
Over the weekend, the lines
in Greece stretched along the street. Around the corner.
Down the block.
Lines to get cash. Lines
to buy gas. Lines of people eager to get their hands on
something of value. Food. Fuel. Cash.
Pity the poor guy who was
last in line…
…the poor taxi driver, for
example, standing behind 300 other people, trying to get
200 lousy euros out of an ATM.
Like a tragic nightclub
customer… among the last to smell the smoke. By the time
he headed for the exit, it was clogged with desperate people,
all struggling to get through the same narrow door at the
Remember: When a bear attacks
in the woods, you don’t have to be faster than the bear.
You just have to be faster than at least one other hiker…
The Beginning of
Likewise, you don’t have
to be the first one to get your money out of an ATM. You
just want to be sure you get your money before the machine
runs out of cash.
And when a bear attacks
Wall Street, you don’t have to be the first to sell. But
you definitely don’t want to be the last.
The Dow lost 350 points
yesterday – its biggest point drop in two years.
Today, Greece is expected
to default on a $1.7-billion payment to the International
Monetary Fund (IMF). And on the other side of the planet,
analysts are looking at “the beginning of the end for Chinese
We doubt it is the beginning
of the end. More likely, it is just the end of the beginning.
On Friday, the People’s
Bank of China cut rates to a record low, after stocks in
Shanghai slipped 7% in a single day (the equivalent of about
1,300 points on the Dow).
Analysts expected a big
rally in response to the rate cut. Instead, the Shanghai
Index plunged again on Monday, dropping 3%.
Greece… China… said one
commentator interviewed by Bloomberg:
“You have a potentially
very ugly situation this week.”
Our guess: Stocks in the
U.S. and China have topped out.
Old-timer Richard Russell,
who has been studying markets since 1958, agrees:
I believe the top has appeared,
like the proverbial thief in the night. The Dow has fallen
below the 18,000-point level, and is now negative for the
The Transports, which have
led the way recently, are down triple digits for today and
are only 89 points above the critical level of 8,000. The
Nasdaq has closed under 5,000. At the market’s close, gold
was up 5.3 at 1,179.
When Gold Is Declared
But wait… What about silver
As regular readers know,
we recommend having some cash on hand in case of a monetary
emergency. But a reader asks:
In the same vein as your reader’s
question as to what good cash is when it’s declared illegal,
what good is gold when gold is declared illegal?
First, precious metals aren’t
illegal, so far. Second, making something illegal doesn’t
necessarily make it unpopular.
President Roosevelt banned
gold in 1933. The feds wanted complete control of money. The
dollar was backed by gold. So getting control of the dollar
meant getting control of gold.
Once the feds had the gold,
they could devalue the dollar by resetting the dollar-gold
price from $20 to $35. In an instant, people lost more than
40% of their wealth (as measured by gold).
That ban lasted for 42 years.
It ended in 1975, largely because of our old friend Jim Blanchard.
Jim set up the National Committee to Legalize Gold and worked
hard to get the ban lifted.
Today, the feds don’t need
to outlaw gold. It is regarded as “just another asset,” like
Van Gogh paintings or ’66 Corvettes. Few people own it. Few
people care – not even the feds. They are unlikely to pay
much attention to it – at least, for now.
That could change when the
lines begin to grow longer. Smart people will turn to gold…
not just in time, but just in case. It is a form of cash –
traditionally, the best form. You can control it. And with
it, you can trade for fuel, food, and other forms of wealth.
Lots of things can go wrong
in a crisis. Cash helps you get through it.
Generally, the price of gold
rises with uncertainty and desperation. (More on the current
outlook on gold in today’s Market Insight below…)
Gold is useful. Like Bitcoin
and dollars in hand (as opposed to dollars the bank owes you),
gold is not under the thumb of the government… or the banks.
You don’t have to stand in line to get it. Or to spend it.
Yes, as more and more people
turn to gold as a way to avoid standing in lines, the feds
could ban it again.
But when we close our eyes
and try to peer into a world where gold is illegal, what we
see is a world where we want it more than ever.