The sale of UK gold reserves was a policy pursued by HM Treasury over the period between 1999 and 2002, when gold prices were at their lowest in 20 years, following an extended bear market. The period itself has been dubbed by some commentators as the Brown Bottom or Brown's Bottom.[1] [2] [3] [4] [5] [6]
The period takes its name from Gordon Brown, the Chancellor of the Exchequer, who decided to sell approximately half of the UK's gold reserves in a series of auctions. This amounted to 395 tonnes of gold sold for a total of $3.5 billion. The gold price increased at an average of 8% annually in the 25 years from 1999-2024.[7]
The UK government's intention to sell gold and reinvest the proceeds in foreign currency deposits, including euros, was announced on 7 May 1999, when the price of gold stood at US$282.40 per ounce (cf. the price in 1980: $850/oz[8]) The official stated reason for this sale was to diversify the assets of the UK's reserves away from gold, which was deemed to be too volatile. However, many critics believe that the decision to invest 40% of the gold sale proceeds into euro denominated assets was to show public support for the new euro currency. The gold sales funded a like-for-like purchase of financial instruments in different currencies. Studies performed by HM Treasury had shown that the overall volatility of the UK's reserves could be reduced by 20% from the sale.
The advance notice of the substantial sales drove the price of gold down by 10% by the time of the first auction on 6 July 1999. With many gold traders shorting, gold reached a low point of US$252.80 on 20 July. The UK eventually sold about 395tonne of gold over 17 auctions from July 1999 to March 2002, at an average price of about US$275 per ounce, raising approximately US$3.5 billion.[9]
To deal with this and other prospective sales of gold reserves, a consortium of central banks - including the European Central Bank and the Bank of England - were pushed to sign the Washington Agreement on Gold in September 1999, limiting gold sales to 400tonne per year for 5 years. This triggered a sharp rise in the price of gold, from around US$260 per ounce to around $330 per ounce in two weeks, before the price fell away again into 2000 and early 2001. The Central Bank Gold Agreement was renewed in 2004 and 2009.
Brown's actions have attracted considerable criticism, particularly concerning his timing, his decision to announce the move in advance, and the use of an auction. The decision to sell gold at the low point in the price cycle has been likened, with hindsight, by Quentin Letts[10] to the mistakes in 1992 that led to Black Wednesday, when the UK was forced to withdraw from the European Exchange Rate Mechanism, which HM Treasury has estimated cost the UK taxpayer around £3.3 billion.
It has also been argued that the sale of the gold reserves was a positive decision in that gold had been historically under-performing and was paying no dividends to the Exchequer and the sale enabled the UK Government to pay off a substantial part of the national debt and keep repayment interest rates down on the remainder.[11] [12]
, the UK retained a gold reserve of 310.3tonne.[13]
