The gold market has historically seen differing approaches between physical gold holders and financial institutions offering paper gold products. Analysis of available documents, including a 1974 cable released by WikiLeaks, suggests that U.S. authorities and bullion banks have influenced market dynamics to prioritize paper gold instruments such as futures contracts and ETFs over physical ownership. Critics argue this approach may help stabilize gold prices and align with broader monetary policies, particularly after the end of the gold standard in 1971. While proponents view these mechanisms as standard financial tools, skeptics raise questions about transparency, supply representation, and the long-term implications for investors.
In 1974, a cable from London gold dealers to the U.S. Secretary of State, later revealed by WikiLeaks, highlighted the strategy of using futures markets to suppress physical demand. The dealers expressed the belief that a sizable gold futures market would emerge, dwarfing physical trading and creating price volatility that would discourage long-term gold hoarding. This revelation demonstrates the early stages of a concerted effort to divert gold investors into a paper-based system rather than allowing widespread accumulation of physical gold.
The U.S. government, keen to maintain the supremacy of the U.S. dollar after the gold standard was abandoned in 1971, saw the futures market as a critical tool to prevent gold from regaining its monetary role. If people shifted their wealth into physical gold, it would undermine the Federal Reserve’s ability to control inflation and monetary policy. By promoting gold futures contracts, which could be created in infinite supply, authorities ensured that gold prices remained suppressed despite rising demand.
The futures market became the primary weapon in this manipulation. The Chicago Mercantile Exchange (CME) allows traders to gain massive exposure to gold without ever taking physical delivery. For example, an investor with $10,000 can leverage their position to control gold worth nearly $380,000. This ability to trade gold on leverage has led to a market where far more gold is traded on paper than exists in physical form.
According to the CME, the amount of gold traded daily vastly exceeds global mining and recycling output, reinforcing the 1974 cable’s prediction that “physical trading would be minuscule by comparison.” This artificial supply suppresses prices, allowing central banks and bullion banks to manipulate the market without needing to deliver physical gold.
Further evidence of market manipulation came in recent years with major banks being fined for engaging in fraudulent trading practices. In August, Scotiabank paid $127 million for eight years of precious metals price manipulation. Similarly, JP Morgan faced a nearly $1 billion penalty for engaging in “spoofing,” a tactic where traders place orders they intend to cancel before execution to deceive other market participants.
These cases confirm that bullion banks have actively distorted gold prices for years, often working alongside government institutions that benefit from keeping gold prices in check. If gold were truly allowed to rise freely based on physical demand, it would serve as a glaring signal of inflation and currency debasement.
Beyond futures, exchange-traded funds (ETFs) like SPDR Gold Shares (GLD) provide another tool for controlling the gold market. While GLD claims to hold 1,275 tons of gold, it sets an impossible threshold for physical redemption requiring a minimum of 100,000 shares, or nearly $20 million worth of gold. This ensures that most investors settle in cash rather than taking delivery of actual metal, further reinforcing the paper gold system.
This structure means that the vast majority of gold investors never take possession of real bullion, keeping physical demand artificially low while maintaining the illusion of gold ownership through paper claims.
Compounding these concerns is the issue of transparency regarding U.S. gold reserves. The last full audit of Fort Knox took place in 1953, and few people including high-level government officials have been allowed to inspect its contents. When Treasury Secretary Steven Mnuchin visited the facility, his only comment was: “Glad the gold is safe!” The lack of independent verification raises serious doubts about how much gold is actually held in reserve.
Additionally, the practice of central banks leasing and swapping gold further obfuscates the true supply. Many gold bars purportedly stored in vaults may already be pledged multiple times, meaning that only a fraction of the reported reserves are physically available.
The risk of counterfeit gold adds another layer of uncertainty. Reuters recently reported that China’s largest jewelry company, Kingold Jewelry, used gold-plated tungsten bars to secure $2.83 billion in loans. If one of the largest gold firms could engage in fraud at this scale, how much of the world’s official gold reserves could also be compromised?
The futures market, ETFs, and unverified central bank reserves all contribute to a system where gold prices are controlled, and physical ownership is discouraged. If investors were to demand delivery of their gold en masse, the entire system could collapse, revealing that much of the gold traded does not actually exist.
At best, the paper gold system is an unfair market tilted in favor of financial institutions. At worst, it is a fraudulent scheme designed to suppress gold’s true value and maintain the dominance of fiat currencies. Unless transparency improves and more investors insist on physical delivery, the manipulation is likely to continue, benefiting those who control the paper gold market while keeping real gold out of the hands of the public.
https://wikileaks.org/plusd/cables/1974LONDON16154_b.html
https://www.investing.com/analysis/talking-gold-manipulation-with-gata-161595
https://www.degruyter.com/document/doi/10.1515/9789048529506-007/pdf?licenseType=restricted&srsltid=AfmBOorOAtCXmCBwWT-1E2dXcfYueftKxaJekQciv8ME3tDulZ2iHImq