Gordon Brown, the former Chancellor of the Exchequer, pictured here in the 1990s.

Dubbed ‘Brown’s Bottom’, the sale of half of the UK’s gold reserves between 1999 and 2002 by then-Chancellor Gordon Brown is considered a particular low point in British history.

Today marks the 20th anniversary of this event, so we revisit Gordon Brown’s mistakes; how a cautious Chancellor let down his guard and undersold more than half of Britain’s gold reserves.


The Backstory:

In 1999, Chancellor Gordon Brown sought to sell off 401 tonnes (56%) of the UK’s gold reserves. The logic was that gold wasn’t being used as a safe haven as much as it had been before, and that foreign currencies like the US Dollar and the imminent Euro would generate much better returns.

The price of gold in the late 1990s was roughly between $254 and $312 per ounce. A 20-year bear market - since the abandonment of the Gold Standard by President Nixon - had been pushing global prices down. Brown was worried that the price would continue to drop even further, so he sought to sell as soon as possible. At the same time, nearing the Millennium, the US Dollar was getting stronger under President Clinton’s administration, and stock markets were making steady gains as interest in tech stocks grew (into what would become the Dot Com Bubble of 2000/01).


The Sale:

Originally intended to be a secret, the planned sale was brought up in a question for the Treasury in the House of Commons on Friday May 7th. The confirmation of intention from the Treasury subsequently alerted the gold market, and the gold price fell by $10 per ounce. There was also the issue of auctions; 17 were planned, suggesting that the UK Treasury did not expect the price to improve any time soon and were thus looking to hedge their bets and make multiple sales to maximise the money made.

The total sale of the gold bullion sold was $3.5 billion, at $275 per ounce average sale value. It is somewhat ironic that Gordon Brown’s attempts to make as much money as possible from a staggered sale resulted in over $100 million less for the gold compared to when the sale hadn’t been announced, but it’s damning just how much more that gold would have been worth further down the line. Gold was $921 per ounce early in May 2009, which would put the gold sold at $11.8 billion in value - $8.3 billion more than Brown got. The 20-year price rise is worse still, with gold currently at $1,279 per ounce. This would make the gold bullion worth $16.4 billion - $12.9 billion more than was received in 1999.


Ignoring the Bank of England:

The bear market, combined with the rise of stocks, shares, and major currencies, was a very tempting prospect for Gordon Brown and a way of making the UK’s assets generate more income for the country. On paper, it looked like a fair move, but the advice from the Bank of England was not to sell – especially when large quantities were already being sold from countries including the Netherlands, Australia, and Argentina.

Gold is known as a safe haven asset that has a traditionally negative correlation with the stock markets. It is strange then that Gordon Brown did not appreciate the bull/bear nature of markets and the fluctuations that come part and parcel with trading.

One reason for this oversight and ignoring the guidance of the BoE could be the Special Relationship between the UK and the US; a temptation to please the USA and back the US Dollar and present a united front for geopolitical reasons internationally, and PR reasons domestically.

Nobody blames Brown for not predicting the market crash after the Dot Com Bubble burst but given the benefits of gold as a diversification of assets it’s hard to forgive the then Chancellor for the oversight, and he was warned.


The Aftermath:

The UK gold reserves still total between 310 and 314 tonnes of gold bullion – the remnants following Brown’s sale. Britain has not bought or sold gold since, and in the case of selling such large quantities of bullion, sales were curtailed by a central bank gold agreement signed in September 1999.

The agreement was coordinated to prevent another major slump in the gold market – such as the one experienced following the Treasury’s decision to hold gold auctions – but the current trend as of 2018 and into 2019 is of growing demand for central bank reserves, with the likes of Russia and China leading the way in demand for gold; as a replacement for the US Dollar as a reserve asset.