Will gold be declared illegal? - The Daily Reckoning

Will gold be declared illegal?

Jun 30, 2015

- By Bill Bonner

Bill Bonner
Baltimore, Maryland

Dear Diary,

Say a prayer for the Last Person in Line.

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 night club customer...he was 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 same time.

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.

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.

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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.

Today, Greece is expected to default on a $1.75 billion payment to the IMF.

Meanwhile, on the other side of the planet, analysts are looking at "the beginning of the end for Chinese stocks."

We doubt it is the beginning of the end. More likely, it is just the end of the beginning. On Friday, the 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 up-move in response to the rate cut. Instead, the Shanghai index plunged again on Monday, dropping 3.3%.

Greece...China...said one commentator interviewed by Bloomberg:

    "You have a potentially very ugly situation this week."
Our guess: Stocks in the US 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 level, and is now negative for the year. 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 1179.

    There's been a huge move into the US dollar, in a flight to safety. As I see it, the dollar is now overbought and over-loved. It closed down 0.64% today. The Dow closed down 350 today at 17,596. It would not surprise me to see the Dow sink below 17,000 during the next week or so. As far as the Transports, a decline of 80 points or more will take them below the critical 8,000 level. I trust my subscribers are out of the market and holding only physical silver and gold.

But wait. Silver and gold? 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?
The short answer is two-fold. First, precious metals aren't illegal so far. And second, making something illegal doesn't necessarily make it unpopular.

FDR banned gold in 1933. The feds wanted complete control of money. The dollar was backed by gold then, so getting control of the dollar meant getting control of gold. Once they had the gold, they could devalue the dollar, simply by resetting the dollar-gold price, from $20 to $35. In an instant, people lost 40% of their wealth (as measured by gold).

That ban lasted for 42 years. The prohibition ended in 1975, largely because of our old friend Jim Blanchard, who set up the Committee to Legalize Gold, 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, of course, 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. Because it 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.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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