The United Kingdom and Gold: 1914 - 2025
This post looks at Gold & the UK between 1914 and the present day. It's a follow on from the popular post ''The Golden Era - The British Empire & Sound Money between 1816 - 1914''
Today’s post is going to look at the intertwining relationship between the United Kingdom and Gold from 1914 to the present day. It is a follow on from the popular article ''The Golden Era - The British Empire & Sound Money between 1816 - 1914''.
You can read that historical piece using the image below.
The Golden Era - The British Empire & Sound Money between 1816 - 1914
Today’s post is going to dive into the history of Britain and specifically look at the Golden Era between 1816 - 1914. This was a time when the sun never set on the British Empire and, because of sound monetary policy, inflation was relatively non-existent.
Last time we checked in with Polymarket and the finishing gold price for 2025, the odds of a finish above $3,200 was about 50%. That has now increased to 63% at the time of finishing this article. To go and have a look for yourself and how this has changed then please use the link in this sentence.
Back to The United Kingdom and Gold: 1914 - 2025 and we will explore 6 key timeframes in this post.
The Gold Standard and World War I (1914–1918)
Interwar Period: Return to Gold and Economic Strife (1919–1939)
World War II and the Bretton Woods Prelude (1939–1945)
Bretton Woods and the Sterling Area (1945–1971)
Post-Bretton Woods: Gold as a Reserve Asset (1971–1990s)
The Brown Gold Sales and Modern Era (1999–Present)
A lot of amounts of gold (in tonnes and £’s) are mentioned throughout this article. A summary of key amounts of approximate tonnes of UK gold reserves is below.
1914: 250 tonnes
1930/1931: 1,080 tonnes
1940: 1,400 tonnes
1950: 2,500 tonnes
1960: 2,500 tonnes
1969: 1,300 tonnes
1999: 715 tonnes
2002: 355 tonnes following significant sales
2024: 310 tonnes
The graph above shows the number of tonnes of gold and the estimated value of the gold in the UK between 1914 and 2024. Note the sharp discrepancy in price and tonnes between 2000 - 2024
1. The Gold Standard and World War I (1914–1918)
The Gold Standard Context
As mentioned in the previous article (link at the top), the UK was the centre of global finance and the linchpin of the global gold standard. The pound sterling was backed by gold held in the vaults of the BoE (Bank of England) and the pound was also the world’s reserve currency. International trade and capital flows were abundant in London.
That all came to an end with the start of World War I in 1914. I’ll keep that simple because different people will say different things about how and when World War I ‘actually’ broke out.
The point being that when war broke out then the UK faced immense financial pressure. One disadvantage of being on a gold standard is that it does not always allow significant flexibility in terms of printing and being proactive/reactive in dire economic circumstances.
In order to maintain the ‘war effort’ and to prevent the outflows of gold and also to maintain reserves, the gold standard was effectively suspended in 1914.
The pound remained notionally convertible but restrictions on domestic convertibility and gold exports were introduced.
Gold Reserves and War Financing
The gold held in the BoE’s were crucial for wartime financing. Most of that gold was used to purchase war materials from the USA and thus the USA obtained quite a lot of the UK’s gold reserves through trade.
By the end of the war in 1918, the UK’s gold reserves were significantly depleted. A lot of gold had been shipped to the USA in order to secure various war loans and war supplies.
It is estimated that between 1914 - 1918, the amount of UK gold stock had fallen from £250 million to just under £100 million. That is a significant decline in terms of fiat currency.
In terms of tonnes, the UK had 250 tonnes in 1914 and then approximately 860 tonnes by 1920.
The suspension of convertibility marked a shift in the thinking of finance. In effect, the UK chose to prioritise war financing over rigid adherence to a gold-backed currency. History shows that this was a case of history repeating itself i.e. Napoleonic Wars and wars in general often lead to the debasement of currency/issues within the monetary system.
2. Interwar Period: Return to Gold and Economic Strife (1919–1939)
Post-War Economic Challenges
Without a shadow of a doubt, World War I left the UK very weakened both in a moral and economic sense. Debt was much higher and the gold stock (in terms of the value of the pound) had fallen from £250 million to just under £100 million. Not a great situation to be in even though the number of tonnes had increased from 250 in 1914 to 860 by 1920!
The 1925 Gold Standard Return
In 1925 the government decided to go back to a gold standard as they wanted to reassert London’s financial dominance and also look to restabilise trade. Unfortunately, Chancellor of the Exchequer Winston Churchill (yes, that Winston Churchill) also decided to return to the pre-war parity of £1 = $4.86. Churchill lamented at a later date that this was a grave decision.
This was because returning to parity overvalued the pound. This made British exports expensive and also accelerated industrial decline. The BoE responded by keeping interest rates high in order to try and defend the pound but this led to stagflation. Unemployment increased and increasing social unrest resulted in the General Strike of 1926.
Gold reserves remained under pressure, trade struggled, balance trade deficits remained and by 1931, gold reserves were estimated to have a value of around £130 million (approximately 1,080 tonnes). This further increase in the number of tonnes helps to emphasis the point that currency devalues over time!
Abandonment of the Gold Standard in 1931
The Roaring Twenties gave way to the Great Depression, which started with the Wall Street Crash of 1929. The Great Depression would go on to last until the outbreak of World War II in 1939.
In short, the crash and subsequent depression strained the gold standard system. Attacks on the pound accompanied with gold outflows to both France and the USA, saw the UK forced to abandon the gold standard on September 21, 1931.
The pound was allowed to float but it depreciated about 25% against the dollar. This depreciation boosted exports (because UK good were cheaper to purchase using foreign currencies) but ultimately this marked the end of the UK’s love affair with a gold standard and moved it towards a managed currency.
Between 1919 - 1939, the BoE actively managed the gold reserves in order to try and stabilise the pound as best as possible. The Exchange Equalisation Account (EEA) was established in 1932. The EEA’s main task was to manage gold and foreign exchanges in order to maintain currency fluctuations as smoothly as possible.
The UK did also greatly benefit from the inflow of gold from its colonies, mainly South Africa and Australia.
3. World War II and the Bretton Woods Prelude (1939–1945)
We saw with World War I that it cost the UK financially. World War II was no different. The playbook was very similar.
The Government tried to mobilise gold as best as possible in order to finance imports i.e. war materials. It tried as best as possible to acquire as much as possible from the USA before the Lend-Lease Act of 1941 came into force.
Shipping across the Atlantic was not ideal at the time but had to be done in order to pay for raw materials, munitions, food and everything associated with the war effort. By 1940 the value of the UK’s gold reserves was approximately £50 million (1,400 tonnes).
Again, note the decline in pound terms but the increase in number of tonnes!
The Lend-Lease Act of 1941 actually reduced the UK’s reliance on gold payments because the USA provided supplies on credit. This is something that the USA would use to its own benefit come the end of the war and also helped to start the beginning of the US Empire.
Despite this act, gold remained (and still remains to this day) both strategically and symbolically important. At the time it was used to settle debt and maintain credibility with neutral trading partners.
War raged on and John Maynard Keynes played a key role in designing the post-war monetary system. Often attributed to calling the gold standard a ‘barbarous relic’, Keynes was a keen advocate for a system that relied less on gold and even promoted the idea of a global currency.
The USA was on the other side of the spectrum and wanted a gold backed dollar system. This was largely due to their large gold holdings at the moment.
The Bretton Woods Agreement was achieved in 1944. It established a system where currencies were pegged to the dollar, which was in turn convertible at $35 an ounce.
Despite depleted reserves, the UK secured a transitional role for the pound within this new system.
World War II ended in 1945.
4. Bretton Woods and the Sterling Area (1945–1971)
Post-World War II saw great difficulties for the UK. A LOT of war debt, infrastructure damage from events such as The Blitz and also low gold reserves. The Bretton Woods Agreement required the UK to maintain a fixed exchange of £1 = $4.03. This necessitated gold and dollar reserves in order to defend that rate.
The USA loaned the UK $3.75 billion in 1946. By the end of the 1940’s the UK had gold reserves of an estimated 2,500 tonnes (£500 million). Despite the economic doom and gloom, this tonnage was still a tenfold increase on the 1914 levels!
The Commonwealth came to the rescue because the pound remained a key currency of influence within it. Other nations such as Canada, Australia and South Africa pegged their currencies to the pound and held reserves in London.
The influx of gold from these countries also helped the EEA’s efforts to stabilize sterling. In 1947 the UK faced a balance of payments crisis, which saw the pound further drop to £1 = $2.80 in 1949.
The above article goes into very good depth about the crisis in 1947 and the crisis in 1949.
Crisis was the main theme of the 1950’s and 1960’s. Trade deficits and capital flight were constantly draining financial reserves. The Suez Crisis aka Second Arab Israeli War in 1956 added fuel to the fire. Despite all of this, UK gold tonnage started 1950 at 2,500 and ended the decade at also 2,500!
Currency attacks throughout the 1960’s saw large outflows of gold.
The UK ended up borrowing X from the International Monetary Fund (IMF) but sold gold to stabilise the pound. Reserves dwindled as a result. Another devaluation in 1967 saw £1 = $2.40. This failed to do anything and by the end of the 1960’s the UK’s gold stocks had fallen to around 1,300 tonnes (Approx. £400 million).
The Nixon Shock on 15th August 1971 saw the USA suspend dollar-gold convertibility and in effect collapsed the Bretton Woods system. In truth and hindsight, the world has never been quite the same again.
Gold’s role as a monetary anchor diminished, and the UK focused on rebuilding reserves through trade and investment rather than gold accumulation.
5. Post-Bretton Woods: Gold as a Reserve Asset (1971–1990s)
The UK shifted towards floating exchange rates and formally abandoned the sterling peg in 1972. The end of Bretton Woods saw gold losing its central monetary role as currencies became fiat based.
The UK treated gold as a reserve asset and the BoE continued to manage gold through the EEA. That being said, the focus shifted over to foreign exchanges.
Gold soared in the 1970’s due to inflation, war and due to the realisation that gold had nothing backing it i.e. it had been let loose by its USD decoupling. The value of the UK’s gold reserves grew in fiat denominated currency. This helped to provide a financial buffer.
Ironically (as we will see in section 6), the government resisted the urge to sell gold as the belief at the time was that gold was a long-term strategic asset.
The Thatcher government (1979–1990) saw the UK pursue relative monetary discipline and privatization. This helped to reduce reliance on gold. The BoE maintained gold reserves at around 600 tonnes during this period.
Gold sales were minimal as this reflected a conservative approach to reserve management.
The UK had approximately 715 tonnes of gold going into the end of the millennium.
6. The Brown Gold Sales and Modern Era (1999–Present)
The Controversial Gold Sales (1999–2002)
Of all crazy policies to have happened in the last 80-90 years, the selling of approximately half of the UK’s gold reserves between 1999 - 2002 (aka Browns Bottom) has to be viewed as the most stupid gold-based decision to have ever fiscally happen to the United Kingdom.
The decision to sell the gold was due to the aim to diversify reserves into dollars, euros and yen. It was also because of the role of modern portfolio management and because gold was viewed as having a diminished monetary role at the time.
Roughly half of the holdings (395 tonnes, 12,700,000 troy ounces) were sold between 1999 - 2002 at a total price of $3.5 billion (about $275 an ounce). These sales coincided with a 20-year low in gold prices.
With gold circling $3,300 at the time of writing this article, it is safe to say that the United Kingdom would have been much better off fiscally by holding on to their reserves.
$3,300 x 12,700,000 = $41.91 BILLION (£31.50 BILLION using todays exchange rates).
Current Gold Reserves
As of 2025, the UK holds approximately 310 tonnes of gold. Using $3,300 an ounce and after conversion from $’s to £’s, these 310 tonnes are worth approximately $30.20 BILLION / £22.75 BILLION.
These reserves are stored primarily in the Bank of England’s vaults in London, with some held at the US Federal Reserve and the Bank for International Settlements (BIS). Gold constitutes about 10–15% of the UK’s total foreign exchange reserves.
This is ok but it certainly could have been much better had the other 395 tonnes NOT BEEN SOLD between 1999 - 2002.
At the time, the treasury argued that gold was a volatile, low-yield asset, and diversification strengthened the UK’s financial position (how wrong they were), whilst various politicians and financial analysts thought that potential sales would undermine national wealth. The BoE also had a role in executing the sales and this sparked a debate about its ‘independence’ with regards to reserve management.
We are operating with the benefit of hindsight, yet we can clearly see that the selling of the gold was the wrong decision and has in fact undermined national wealth and financial security.
Modern Role of Gold
It is difficult to take the UK seriously when it talks nowadays about the importance of gold and holding this pet rock. Overall, it is fair to say that the UK views gold as a hedge against geopolitical and economic risks, including currency depreciation and inflation. If that was the thought 25 years ago then why was the other gold sold?
No significant gold sales or purchases have been made from 2002 onwards.
The Bank of England also custodies gold for other nations and central banks, reinforcing London’s role as a global financial hub. This has been under pressure recently due to New York wanting to take physical delivery of bullion from the BoE for a multitude of geopolitical and financial reasons.
Other key points & the future for Gold in the UK
Historically speaking, the UK’s gold reserves were bolstered by its empire and supply from its colonies. This is no longer the case and the focus has since shifted towards trade. The emphasises the shift from being an imperial power to a financial power
Gold is still symbolic in the UK and the Royal Mint produces some sought after coins i.e. Sovereigns & Britannia’s
The UK’s gold reserves stand at approximately 310 tonnes. This would have been a lot more if it were not for Browns Bottom between 1999 - 2002
The UK might look to use its meagre holdings as a part of some sort of digital pound in the future
The UK is unlikely to significantly alter its gold holdings moving forwards.
Conclusion
The relationship between the UK and gold has altered significantly between 1914 and 2025. The end of empire saw the end of being an imperial power. It is difficult to class the UK as being a ‘financial power’ between 1914 - 1971 due to the sheer amount of issues the pound had, combined with multiple currency devaluations and issues with the IMF.
Two World War’s saw similar results in terms of the UK being on the financial brink.
The Brown sales remain a very dark point for the UK in terms of gold holdings, and this series of sales has severely hindered the UK.
The role of gold within the UK’s reserves has diminished but London, BoE and LBMA all make London one of the major financial heartbeats of the world. The optimist in me would say that the UK will add aggressively to its gold holdings moving forwards but the realist in me says that this is very unlikely to happen.
310 tonnes is better than 0 tonnes, yet it could have been (and should have been) so much more.
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CC
„Shipping across the Atlantic was not ideal at the time…“
Quite.
Nice one 🫡
Can notice the effort, like we discussed earlier about this!