Gold in Handcuffs?
“Make new friends, but keep the old. One is silver, the other is gold.” – Joseph Parry
The overlap in the Venn diagram of motivations for owning Bitcoin and for owning gold is more comprehensive than many gold enthusiasts are comfortable admitting. Both are considered assets that can be held outside the government’s reach. Both have a certain "moneyness" about them, with many believing each is a more durable store of value than fiat currency. While gold has existed for thousands of years and its current total market value dwarfs that of Bitcoin, Bitcoin has the potential to grow as an easier medium of exchange in the modern digital era. In essence, Bitcoin and gold are slightly different embodiments of solutions to the same problem.
In two of our recent pieces – Pandora’s Precedent and Don Jerome – we chronicled how the weaponization of the US dollar and access to banking are being used to crush the crypto industry with minimal due process and even less recourse. We also speculated that Bitcoin would eventually fall into the crosshairs of the US Treasury’s “Eye of Sauron.” This past Monday, the opinion page of the Wall Street Journal concurred with our concerns. In a piece titled “Barney Frank Was Right About Signature Bank,” the paper’s Editorial Board had this to say (emphasis added throughout):
“We never thought we’d write that headline. But on Sunday the Federal Deposit Insurance Corp. announced that New York Community Bancorp’s Flagstar Bank will assume all of Signature Bank’s cash deposits except for those of crypto companies. This confirms Mr. Frank’s suspicions—and ours—that Signature’s seizure was motivated by regulators’ hostility toward crypto.
Mr. Frank alleged last week that regulators seized Signature, whose board he served on, ‘to send a message to get people away from crypto.’ It increasingly appears that way. Reuters reported last week that the FDIC was requiring any buyer of Signature to give up all crypto business at the bank. The FDIC denied this.”
We now cast a wary eye toward recent developments in the gold market. While the gold community is naturally excited about the prospect of the metal’s return to prominence as a global reserve asset, we see flashing signs of caution. Specifically, the growing momentum to push away from the US dollar system, led most notably by Brazil, Russia, India, China, and South Africa (the so-called BRICS countries), gives hope to many that gold will play a central role in how those countries settle international trade imbalances. In that scenario, bullish investors expect gold to experience substantial appreciation against the US dollar. Recent moves by China’s Xi Jinping – brokering a peace deal between Iran and Saudi Arabia and making a state visit to Moscow – are seen as signs of progress toward a new golden age for gilded portfolios.
Given the dangerous precedents being set by Operation Choke Point 2.0, such thinking might be a case of “be careful what you wish for.” In a world where gold enables the geopolitical enemies of the US to circumvent the power of the dollar, how would the Eye of Sauron respond? Could gold become the next crypto, targeted by US authorities for ejection from the Western banking system? It’s not as crazy as it sounds. Let’s open the vault and have a look.