In an interesting development, WikiLeaks has produced a document from December 1974 between London gold dealers (Samuel Montagu & Co., Sharps Pixley & Co., Ltd., Mocatta & Goldsmid, and Consolidated Gold Fields, Ltd.) and the U.S. State Department. The unclassified document from the State Department was sent from the U.S. Embassy in London, with an interesting title: LONDON WHOLESALE GOLD DEALERS’ VIEWS ON U.S. GOLD SALE AND PRIVATE U.S. OWNERSHIP. The U.S. Treasury was expediting the sale of two million ounces to maintain a stable price, as the run up in the gold price was expected due to the deregulation coming on January 1, 1975 that allowed U.S. citizens to own gold privately again.
With the demand for private gold ownership increasing, the solution to maintain the amount of gold that U.S. citizens would hold was to create a futures market. Large-scale futures trading would make the gold price volatile and discourage citizens from participating in the physical market, lowering the possibility of long-term hoarding. This correspondence shows that the 1975 deregulation law created the futures market and the price suppression scheme.
Concerns were that the buyer of the U.S. Government’s gold — such as a single person or a buyer from an oil producing nation — would spike the price (as much as $250) and show unforeseen demand. “The dealers with whom we spoke stated that, to date, there had been no significant activity in the gold markets by official monetary authorities of Arab countries.” They also expressed the view that should markets conditions indicate that prices may rise rapidly in the near-term, a large-volume purchase from an oil producing area should not be totally discounted or unexpected. The solution to this was to have the announcement of another large sale purchase for a larger amount to signal to the market that supply was normal.
The battle between the synthetic market and the physical market rages on.