Gold is humanity's oldest financial asset. For millennia, trading it was the exclusive domain of the elite: kings, bankers, and merchants. It was only in the 1970s that gold became accessible to the middle class, while the arrival of futures and margin trading changed the rules of the game forever. Here, we examine how the "metal of the rich" evolved into an asset with 1:4000 leverage.
The Era of the "Gold Club": When Trading Was an Elite Privilege
Until the mid-20th century, gold trading was essentially physical and wholesale. The world's primary venue was (and remains) the London Bullion Market (Loco London), with roots tracing back to the late 1600s.
The standard trading instrument in this market is the Good Delivery bar. Its specifications are strictly standardized by the London Bullion Market Association (LBMA):
- Weight: Approximately 400 troy ounces (~12.4 kg)
- Purity: No less than .995 fineness
- Value of one bar: At current prices, over $300,000 USD
This is exactly why gold was historically a market "for the wealthy." A private individual or a small company simply could not afford to trade standard London bars. Transactions took place between central banks, large commercial banks (LBMA members), and jewelry corporations.
Furthermore, from 1933 to 1974, private citizens in the US were prohibited from owning gold altogether. The famous Executive Order 6102, signed by President Franklin D. Roosevelt on April 5, 1933, required Americans to deliver all gold coins, bullion, and certificates to the Federal Reserve.
Violations were punishable by a fine of up to $10,000 or a prison term of up to 10 years. This ban remained in effect for over 40 years, turning gold in the US into an instrument used exclusively by the state and the international interbank market.
December 31, 1974: The Day Gold Became a "People's Asset"
The turning point arrived at the end of 1974. On December 31, 1974, a law signed by President Gerald Ford went into effect, officially restoring the right of American citizens to private gold ownership.
On that very same day—December 31, 1974—the Chicago Mercantile Exchange (COMEX, now part of CME Group) launched gold futures trading (ticker: GC). The first trade was executed on that exact date. This event was a revolution for several reasons:
1. A Sharp Drop in the Barrier to Entry
The standard COMEX futures contract (still in use today) represents 100 troy ounces of gold. This is approximately 3.1 kg of metal—125 times smaller than a London Good Delivery bar. Instead of hundreds of thousands of dollars, controlling one contract required only a few thousand.
2. The Emergence of Leverage
Futures are, by nature, a margin instrument. A trader does not need to pay the full value of 100 ounces of gold. It is sufficient to provide only the initial margin—usually 5–10% of the contract value.
This means that leverage appeared in the gold market. If the margin requirement is 5%, the leverage is 1:20. A trader can control 100 ounces of gold by paying only a small fraction of their cost.
3. Short Selling and Profiting from Downturns
Just as with Bitcoin in 2017, futures made the gold market two-sided. Any participant could now open a short position and profit from falling prices—something the physical market previously did not allow.
From COMEX to Forex Brokers: How Leverage Grew to 1:4000
COMEX futures ushered in the era of margin gold trading, but they initially remained a tool for professionals. True "democratization" happened later, in the 1990s and 2000s, with the emergence of two new phenomena:
1. "Local Gold" (Loco London) for Private Individuals
The Hong Kong market historically offered a product called "London Gold"—unregulated, high-leverage gold trading aimed specifically at private speculators. This was an over-the-counter (OTC) market where leverage reached 1:20 and higher, but it carried significant risks and was poorly regulated.
2. CFDs and Forex Brokers: Leverage up to 1:4000
With the development of the internet and electronic trading platforms in the late 1990s and early 2000s, gold CFDs (contracts for difference) emerged. Forex brokers allowed retail traders to trade the XAU/USD pair with leverage that far exceeded COMEX futures standards.
It is important to understand that there are two categories of brokers, and their offerings differ radically:
A. Strictly Regulated Brokers (EU, US, Australia, UK) Following the 2008 financial crisis and particularly the 2015 Swiss franc crash, regulators began to strictly cap the maximum leverage available to retail clients:
- ESMA (European Union): Since 2018, the maximum leverage for gold is 1:20
- CFTC (USA): Leverage for Forex pairs is 1:50, for gold—individual, but typically no higher than 1:20
- ASIC (Australia): Follows ESMA guidelines, 1:20
One reason for such strict limits on maximum leverage is the somber statistic: 70–85% of retail traders consistently lose their deposits. Excessive leverage (1:500 and higher) turns trading into a casino, accelerating account liquidation to a matter of seconds.
B. Offshore Brokers (Belize, British Virgin Islands, Seychelles, Vanuatu). This is where leverage reaches extreme levels. These companies are registered in jurisdictions where regulators do not impose strict caps on maximum credit leverage. For the Russian-speaking market, this is the primary segment, and the offerings here are striking:
- RoboForex (IFSC Belize license): leverage up to 1:2000
- Forex4You (BVI FSC license): leverage up to 1:4000
- Alpari, InstaForex, FBS, Exness and dozens of others: leverage from 1:1000 to 1:∞ (unlimited leverage from some brokers on small lots)
The Modern Landscape: Who Trades Leveraged Gold and How
Today's gold market is a complex, multi-tiered structure:
Following the 2008 financial crisis and specifically the 2015 Swiss franc collapse, regulators (ESMA in Europe, CFTC in the US) began strictly limiting maximum leverage for retail clients. In the European Union, since 2018, the maximum leverage for gold available to retail traders has been 1:20. However, offshore brokers continue to offer leverage of 1:100 and beyond.
Historical Parallel: Gold and Bitcoin
Interestingly, the history of gold has repeated itself almost literally in the history of Bitcoin, albeit on a condensed timeline:
- Gold: Millennia of physical trade → 1974 (COMEX, leverage) → 2000s (CFDs, mass access).
- Bitcoin: 2009–2017 (Spot only, "one-sided" market) → December 2017 (CME/CBOE, futures, leverage) → 2020s (mass retail access via CFDs and perpetual contracts on crypto exchanges).
In both instances, the introduction of regulated futures on a major traditional exchange served as the trigger that transformed a niche asset into a legitimate investment class with two-sided trading, leverage, and the arrival of institutional capital. The only difference is that gold took over 40 years to complete this journey, while Bitcoin did it in less than 10.
