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The Sizable Gold Futures Market

gold market charts

About a decade ago, the organization Wikileaks unearthed and released a very interesting memo from December of 1974. Given the counter-intuitive price action of last Friday, I thought it might be instructive to review again what Wikileaks found.

First let's review the timing of the memo. As you can see below, it's dated December 10, 1974. Why is that important? COMEX gold futures trading began on December 31, 1974.

15 april gold price chart

Next, note that this memo originated with the Department of the Treasury in London and was sent to the U.S Department of State. Here's a link to the entire document:

•              https://wikileaks.org/plusd/cables/1974LONDON16154_b.html 

Also, be sure to consider the timing. The London Gold Pool had failed in 1968, and by 1971 the United States was having such difficulty managing the gold price via physical exchange that President Nixon was forced to close the gold window and "suspend" gold redemptions on August 15, 1971. 

By 1974, managing the situation via physical metal had proven untenable and a dramatic change was required. And what was that? Digital alchemy. With the advent of gold futures trading, the U.S. and London discovered that digital/pretend gold was just as useful and widely accepted as the real thing. This new "supply" would help them to restrain price.

But it was more than that. By creating a futures market for gold, the bureaucrats and bankers suspected that they'd be able to control physical demand too. How? Those in charge reckoned that the price volatility that would accompany futures trading would be enough to scare off long-term holders of physical. See for yourself in this screenshot from the 12/10/74 memo:

15 april gold price chart

With that in mind, consider the events of last Friday. Both COMEX digital gold and silver were soaring ahead of what was expected to be a volatile weekend in the Middle East. Additionally, the price of COMEX silver was just below $30/ounce, the highest level it had seen since the days of the #silversqueeze movement in early February of 2021. In hindsight, what happened next should not have come as a surprise.

As you can see below, COMEX gold fell nearly $100 or 4% in just four hours. COMEX silver fared even worse with a drop of $1.90 or nearly 7% over the same four-hour period.

15 april gold price chart

15 april gold price chart

You can always spot a manipulative event by the size and scope of the counter-intuitive moves, and it should be noted that both crude oil and Bitcoin futures also saw price slams on Friday and over the weekend. But price and perception management is a topic for another day. For now, let's return to the December 1974 memo and focus upon this section regarding "large volume futures dealing":

15 april gold price chart

As you might imagine, it takes a lot of futures firepower to turn and reverse price in the manner seen last Friday. How much? Let's start with gold. Total trading volume for COMEX gold that day was 517,162 contracts or about 2-3X the usual/average daily volume.

15 april gold price chart

How much "gold" is that? Theoretically, there are 100 ounces of gold per each COMEX contract, so Friday's trading volume of 517,162 contracts equates to 51,716,200 ounces or about 1,608 metric tonnes. So, first, keep in mind that the COMEX only holds a total of 17,582,172 ounces in their vaults, so Friday's trading volume was 3X the entire COMEX registered and eligible holdings.

15 april gold price chart

And how much gold is 1,608 metric tonnes? A sovereign nation holding that much gold would land at #7 on the list below. As such, Friday's COMEX trading volume definitely classifies as "sizable".

15 april gold price chart

Even more egregious, however, was the daily trading volume of COMEX silver. See below that the total came in at 227,883 contracts!

15 april gold price chart

On COMEX, every contract is supposed to represent 5,000 ounces of silver. So, doing the math, 227,883 contracts equates to 1,139,415,000 ounces. How much silver is that? Worse than gold, that total is nearly 4X the total amount of silver allegedly held in the COMEX vaults.

15 april gold price chart

But that's not the full story. This latest report from The Silver Institute projects global mine supply in 2024 to come in at about 843,000,000 ounces. 

15 april gold price chart

So, again, let's do some math. Friday's trading volume of COMEX silver was equivalent to 135% of annual global mine supply. That definitely counts as "sizable"!

What's the point of this post? I guess it's this: Don't let the scheming of The Bankers scare you off as the December 1974 memo stated. Yes, the futures market occasionally makes the physical market appear to be tiny in comparison, and yes, price volatility does negate retail demand. But don't let it negate yours!

Physical hoarding is the only way to defeat the pricing structure that was established nearly forty years ago. At all costs, you must avoid The Banker's ETFs, futures contracts, unallocated accounts, and every other form of alchemized gold and silver that has been deployed since 1974. Demand physical metal only and take delivery. Only by breaking this unallocated and digital derivative pricing scheme can we see a return to free, fair, and unmanaged prices for physical gold and silver.

Don’t miss a golden opportunity.

Now that you’ve gained a deeper understanding about gold, it’s time to browse our selection of gold bars, coins, or exclusive Sprott Gold wafers.

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About the Author

Our Ask The Expert interviewer Craig Hemke began his career in financial services in 1990 but retired in 2008 to focus on family and entrepreneurial opportunities.

Since 2010, he has been the editor and publisher of the TF Metals Report found at TFMetalsReport.com, an online community for precious metal investors.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.


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