On December 10, 1974 — 21 days before COMEX launched gold futures — the US Embassy in London cabled Washington with a summary of consultations with four of the City’s largest gold dealers: Samuel Montagu & Co., Sharps Pixley & Co., Mocatta & Goldsmid, and Consolidated Gold Fields.
The cable, classified “LIMITED OFFICIAL USE” and declassified in 2005, contains a prediction in its fourth paragraph that deserves reading carefully:
“THE MAJOR IMPACT OF PRIVATE U.S. OWNERSHIP, ACCORDING TO THE DEALERS’ EXPECTATIONS, WILL BE THE FORMATION OF A SIZABLE GOLD FUTURES MARKET. EACH OF THE DEALERS EXPRESSED THE BELIEF THAT THE FUTURES MARKET WOULD BE OF SIGNIFICANT PROPORTION AND PHYSICAL TRADING WOULD BE MINISCULE BY COMPARISON. ALSO EXPRESSED WAS THE EXPECTATION THAT LARGE VOLUME FUTURES DEALING WOULD CREATE A HIGHLY VOLATILE MARKET. IN TURN, THE VOLATILE PRICE MOVEMENTS WOULD DIMINISH THE INITIAL DEMAND FOR PHYSICAL HOLDING AND MOST LIKELY NEGATE LONG-TERM HOARDING BY U.S. CITIZENS.”
Futures would dwarf physical trading. Futures volume would create volatility. That volatility would discourage Americans from accumulating physical metal. Every part of that prediction came true.
Why the Cable Exists
On December 31, 1974, President Ford signed Executive Order 11825, repealing the ban on private gold ownership that had been federal law since Roosevelt’s Executive Order 6102 in 1933 — 41 years. COMEX launched gold futures trading the same day.
Gold had climbed to $195.25 at the London PM fix on December 30, 1974, up from $35 when Nixon closed the gold window in August 1971. The embassy cable was pre-legalization intelligence gathering: would Americans rush into physical gold and further destabilize a monetary system still adjusting to the collapse of Bretton Woods?
The London dealers thought not. Paragraph 5 of the cable notes they doubted Americans were “PSYCHOLOGICALLY PREPARED TO SWITCH FROM SMALL SCALE GOLD COIN PURCHASES TO LARGE SCALE, LONG-TERM BULLION HOARDING.” Most Americans who bought gold after legalization bought coins and small bars, the same pattern that holds today. The futures market absorbed the speculative demand that might otherwise have flowed into vaults.
The cable was signed by Ronald I. Spiers, the embassy’s deputy chief of mission.
Prediction vs. Blueprint
GATA, GoldBroker.com, and SilverSeek have all cited this cable as evidence the US government created futures markets to suppress gold demand. The cable doesn’t go that far, but it records what London dealers predicted, not what Washington ordered.
But the people making these predictions were the same firms that would become market-makers on the new futures exchanges. Their predictions described a structure they intended to profit from. And the government that received this cable three weeks before COMEX launched took no action to prevent the outcome. Subsequent policy decisions reinforced it.
The Treasury Gold Auctions
Six days after gold ownership became legal, the Ford administration acted. On January 6, 1975, the US Treasury auctioned 2 million ounces of gold. Bids came in for less than half the offered amount. The cutoff price was $153 an ounce. Gold dropped sharply in the weeks that followed.
A second Treasury auction on June 30, 1975 sold additional reserves. Between the two sales, the Treasury moved 1.25 million ounces at prices ranging from $153 to $185. The stated purpose: demonstrate that gold was an ordinary commodity.
The Burns-Bundesbank Agreement
Declassified correspondence from Federal Reserve Chairman Arthur Burns to President Ford, dated June 3, 1975, reveals a secret agreement with the German Bundesbank. Germany committed not to purchase gold, from the market or from other governments, at any price above the official rate of $42.22 per ounce. The market price was roughly four times higher.
Burns wrote that he was “convinced that by far the best position for us to take at this time is to resist arrangements that provide wide latitude for central banks and governments to purchase gold at a market-related price.” If the world’s second-largest economy wouldn’t buy gold above $42.22, other central banks faced pressure to follow.
The result was a two-tier market: paper trading at market prices, official transactions priced at $42.22. That disconnect between paper pricing and physical reality has a direct descendant in today’s COMEX structure, where paper contracts trade at multiples of deliverable inventory.
The Modern Futures Market
The market structure those London dealers described didn’t just materialize — it compounded. Today, COMEX gold and silver futures operate on a fractional-reserve basis.
The paper-to-physical ratio — outstanding futures contracts divided by deliverable metal in COMEX warehouses — measures how many paper ounces claim each physical ounce. As of mid-2026, silver’s coverage ratio sits around 13-14%. Anything below 15% is stress territory, historically associated with delivery squeezes.
The gold spot price and silver spot price on dealer sites and terminals come from these futures markets, not from physical transactions. The vast majority of contracts never result in delivery of actual metal. This is what the 1974 cable described: a futures market of “significant proportion” where “physical trading would be miniscule by comparison.”
JPMorgan: Theory Becomes Case Law
In 2020, JPMorgan Chase paid $920 million — the largest market manipulation penalty in CFTC history — to settle charges that its precious metals desk systematically spoofed gold, silver, platinum, and palladium futures for eight years.
Between May 2008 and August 2016, traders placed thousands of large orders they intended to cancel before execution, moving prices to benefit the bank’s positions on the opposite side. The head of the desk, Michael Nowak, and his top gold trader, Gregg Smith, were convicted in August 2022 of wire fraud, attempted price manipulation, commodities fraud, and spoofing. Smith received two years in prison; Nowak received one year and one day.
One desk at one bank moved precious metals prices for eight consecutive years, documented in chat logs and order records. JPMorgan wasn’t alone — multiple banks have faced criminal charges and civil settlements over precious metals manipulation, including Deutsche Bank’s $38 million silver-fixing settlement in 2016. If this kind of manipulation can run for years before prosecution, the structural vulnerability the 1974 dealers described isn’t a historical footnote.
What This Means for Physical Buyers
Futures markets serve real functions — price discovery, hedging for miners and manufacturers, liquidity. But the 1974 cable identified a dynamic that hasn’t changed: the structure inherently favors paper trading over physical accumulation.
The paper-to-physical ratio is a leading indicator. When COMEX inventory declines relative to open interest, fewer ounces back each paper claim. That ratio preceded the premium spikes of 2020-2021, and silver’s current coverage below 15% is back in the same zone. Spot prices tell you what paper is doing; inventory ratios tell you whether physical agrees.
Volatility is structural, not accidental. The 1974 dealers predicted futures volatility would discourage long-term holding. Sharp drops correlate with retail selling and sharp rises with retail buying — the opposite of disciplined accumulation. Dollar-cost averaging at the lowest available premiums sidesteps the emotional leverage that volatility creates.
The London dealers of 1974 bet that Americans wouldn’t become long-term stackers. Proving them wrong starts with buying at the best available price and holding.
