by Craig Hemke, Sprott Money:
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.
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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:
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.
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”:
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.
