A declassified diplomatic cable from 1974 seems to be describing, before US gold futures trading began, the market structure that would eventually make manipulation unusually powerful.
London bullion dealers told American officials that futures trading would become enormous compared with physical gold transactions. They predicted that the resulting market would be highly volatile and that the volatility would discourage Americans from accumulating bullion.
Decades later, regulators found that traders at major financial institutions had exploited precious-metals futures to generate false signals of supply and demand, influence prices, and profit from other market participants.
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The cable did not predict who would manipulate gold or exactly how they would do it. It anticipated the architecture they would use.
The 51-year-old cable
The US Embassy in London sent the document to Washington on December 10, 1974, ahead of the restoration of private gold ownership in the US.
Embassy officials had spoken with four major London wholesale dealers: Samuel Montagu & Co., Sharps Pixley & Co., Mocatta & Goldsmid, and Consolidated Gold Fields. The conversations focused on a planned US Treasury auction of 2 million ounces of gold and how American investors might behave once ownership restrictions ended.
The dealers expected an initial burst of physical buying, particularly in coins, but doubted that Americans would become large-scale, long-term bullion holders.
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Their more consequential forecast concerned futures. According to the cable, each dealer expected private US ownership to produce a “sizable gold futures market.” They believed futures trading would reach “significant proportion,” while physical trading would be “minuscule by comparison.”
COMEX launched gold futures on December 31, 1974.
Now, the modern futures market broadly resembles what the dealers described. CME Group says its benchmark gold contract trades the equivalent of nearly 27 million ounces each day. Each standard contract represents 100 troy ounces.
That does not mean 27 million physical ounces are delivered daily. Futures volume counts contracts traded during a session, including contracts that may change hands repeatedly. The CFTC says most futures contracts are closed through offsetting transactions rather than physical delivery.
This distinction weakens attempts to establish a universal paper-to-physical ratio. Daily volume, open interest, warehouse inventory, mine production, and privately held bullion are different measurements.
Still, the broader imbalance is real. A vast amount of financial gold exposure can be created, bought, and sold without an equivalent transfer of bullion. That gives futures trading enormous influence over the price used throughout the physical market.
Gold manipulation
A large futures market is not inherently manipulative. Futures allow miners, refiners, manufacturers, investors, and financial institutions to hedge or assume price risk.
The structure becomes relevant to manipulation because large or deceptive orders can alter the market’s visible balance of buying and selling without requiring manipulators to acquire or dispose of comparable quantities of physical metal.
That vulnerability is no longer theoretical. In 2020, JPMorgan Chase agreed to pay $920.2 million to resolve investigations into unlawful trading in precious-metals and US Treasury futures markets. Regulators said traders placed hundreds of thousands of orders they intended to cancel before execution, a practice known as spoofing.
The orders created misleading impressions of market demand or supply. The false signals allowed traders to influence prices and improve the execution of genuine positions placed on the opposite side of the market.
The US Justice Department said the precious-metals conduct ran from approximately March 2008 through August 2016 and involved gold, silver, platinum, and palladium futures. JPMorgan entered a deferred prosecution agreement covering two wire-fraud charges.
Former JPMorgan traders were later convicted of fraud, attempted price manipulation, and spoofing in a scheme involving thousands of unlawful trading sequences.
Those cases demonstrate what the cable can help explain. When futures markets dominate price discovery, manipulating futures can affect the reference price for a much wider physical market.
Volatility
The cable’s second prediction concerned volatility. The dealers expected large-volume futures dealing to create a “highly volatile market.” They believed those price movements would diminish initial demand for physical gold and potentially “negate long-term hoarding by US citizens.”
However, it establishes that influential dealers understood the behavioral consequences before gold futures opened. A market dominated by leveraged financial trading could produce swings disconnected from immediate changes in physical buying, selling, or production. Those swings could make bullion appear riskier and discourage investors from holding it.
Ekwueme’s argument makes the most sense at this structural level.
The cable does not prove that officials ordered exchanges to suppress gold, deliberately manufactured volatility, or established a coordinated manipulation program. It shows that dealers expected paper trading to overwhelm physical activity and understood that the resulting volatility could weaken demand for bullion.
The cable therefore appears predictive not because it reveals the manipulators’ original instructions, but because it identified the conditions under which modern gold manipulation would become possible and consequential.
