The gold that got away

As gold pushes past $3,500 an ounce, one of the most ill-timed financial decisions in recent British history demands renewed scrutiny. Between 1999 and 2002, Gordon Brown, then Chancellor under New Labour, authorised the sale of 395 tonnes of the UK’s gold reserves. The timing could hardly have been worse. Prices hovered around £204 an ounce, the lowest level in two decades. What followed was a sustained bull market.

The sale raised around £2.6 billion, which was redirected into foreign currency assets—mainly euro- and dollar-denominated bonds. What return they delivered remains opaque. What is measurable is the loss. At today’s prices, that gold would be worth over £30.4 billion. Strategic errors of this magnitude are rare. That this one was government policy makes it remarkable.

The official rationale was diversification. Gold, dismissed as inert and outdated, was to be swapped for interest-bearing instruments more in line with a modern Treasury. But many suspected deeper motives. A significant share of the proceeds went into euro-denominated bonds, just as Britain was under pressure to show goodwill towards the newly launched euro. It looked like a political hedge to support the currency, without joining it.

Others saw the move as a covert bailout. Bullion banks, heavily short on gold through the now-infamous “carry trade”, were dangerously exposed to rising prices. Dumping a large volume of gold onto the market pre-announced inexplicably gave those institutions the cover they needed to unwind positions cheaply. Some call it incompetence. Others, complicity.

Whatever the motive, the result is plain: Britain sold real assets at the bottom of the market to chase paper at the peak of technocratic confidence. Two decades on, the damage is not just financial but symbolic. Gold’s resurgence is a reminder: sound money outlasts political fashion.