The real origin is with the Bank of England and the United Kingdom's 'accidental' switch to an informal gold standard in the early 1700s through an over-valuation of gold against silver by Sir Isaac Newton, then Master of the London Mint. Within the United Kingdom, people switched from holding silver to the slightly more valuable gold coins, which soon formed the main circulation. The Bank of England, founded in 1694, became the crossroads of gold coming into London and an issuer of bank notes – backed by gold. By 1740, the Bank of England held 28 tonnes (0.9 million oz) of gold against note issue; official reserves had begun.

Gold reserves (Credit: World Gold Council)

Most countries remained on a silver standard until the discovery of gold in California in 1848 and then in Australia. Gold production rose from 43 tonnes (1.4 million oz) in 1846 to 203 tonnes (6.5 million oz) by 1856. Most of this gold went either into government or central bank reserves or gold coin which they issued.

World War I caused many governments to build up gold stocks to pay for the war; by 1915 central banks held 7,122 tonnes (229.4 million oz), partly increasing their stocks by calling in circulating gold coin. After World War I, central banks continued to husband gold, while gold coin never re-established itself in public circulation. In 1931, Britain and most other countries came off the gold standard, meaning gold coin ceased to circulate as fixed price money of the day in people's pockets. Central banks' stocks were over 17,000 tonnes (almost 550 million oz).

The US came off gold in 1933, and in 1934, President Roosevelt set a new gold price of $35 per ounce (up from $20.67) with the US Assay Office buying all gold offered, pushing US reserves from 2,799 tonnes (90 million oz) to 10,703 tonnes by 1942 and ultimately to 22,000 tonnes (707 million oz) by 1949. The US then held 75% of all official gold and nearly half of all gold ever mined.

From 1949-1971 US stocks declined as European central banks traded in dollars for gold. In 1971, when the Federal Reserve Bank of New York closed its 'gold window', US stocks were down to almost 9,000 tonnes (290 million oz), but Europe's central banks held over 20,000 tonnes (645 million oz). Those positions were largely frozen until the 1990s, except for sales of 530 tonnes (17 million oz) by the US in the late 1970s, and modest sales by Canada from 1980 onwards. Then European central banks in Austria, Belgium, the Netherlands, and ultimately the United Kingdom and even Switzerland began or planned gold sales. Other countries followed suit, Argentina, Australia and New Zealand sold most of their gold; Canada kept selling steadily.

In the 1990s, central banks world-wide sold close to 3,000 tonnes (96.4 million oz), leading to much debate in the gold market.

The three major central banks involved in the gold market are: Bank of England, Federal Reserve Bank of New York, and European Central Bank (ECB).

A complete list of central banks.

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