Bank of England

The Bank of England, founded in 1694, has been a focal point of precious metal trading in London for three centuries. For much of that time, the bulk of imports of gold and silver into Britain were sent for delivery at its bullion office. The origin of The London Good Delivery List is those refineries whose bars were accepted at the bullion office. Only with the great expansion of the gold business after the Californian and Australian gold rushes in the 1850s was the bullion office by-passed by brokers, such as Mocatta and Rothschild, weighing and storing gold independently. The Bank was also responsible throughout the period that Britain was on the gold standard for buying gold and sending it to the mint for coinage.

After the establishment of the daily gold 'fixing' in London 1919, the Bank acted as agent for the South African Reserve Bank in marketing its gold at the fix until March 1968. During the 1960s the Bank also acted as agent for the international gold pool in trying to hold the gold price at $35 per ounce at the fix. The Bank was also the regulator of the London Gold Market until 1998, when that responsibility passed to the new Financial Services Authority.

London is the essential clearing house for global dealing
(Credit: Illustrated London News)

The Bank has always maintained an active, if modest, trading role in gold, both for the management of UK reserves and to match its sales of Sovereigns, of which it remains the official distributor. Between July 1999 and March 2002 the Bank acted as an agent for the UK Treasury, which initially planned to dispose of 415 tonnes (13.34 million oz) or 58% of the country's gold reserves (the sales target was subsequently revised downwards). The Bank of England held seventeen auctions, initially for 25 tonne (0.80 million oz) lots, the sales quantity per auction later being lowered to the 20 tonne (0.64 million oz) level. The final auction took place on 5th March 2002 and brought the total amount of metal sold on behalf of the UK Treasury to a little over 400 tonnes (12.86 million oz). Following the conclusion of the sales programme the UK was left with a stock of 315 tonnes (10.13 million oz), slightly more than originally forecast.

The sale of UK gold reserves generated a fair amount of controversy. The National Audit Office (NAO) was instructed to prepare a report into the method and execution of the gold sales. This report came to the broad conclusion in January 2001 that, in the designing and implementing of the sales programme, the objective of selling 'in a transparent and fair manner while achieving value for money' had been successful. However, the NAO report suggested that the Treasury review the possibility of adapting the auction design or even using the London gold fixing as an alternative or additional means of selling gold. This conclusion may well explain the subsequent decision (referred to above) to reduce the amount of gold offered at each auction.

The Bank has played an additional role in the gold market as a recognised International Monetary Fund (IMF) depository. It holds gold on behalf of many nations and often acts on their behalf in gold transactions. Because of its unique experience with gold among central banks, it has done much to develop the leasing and swap market, which is centred primarily on London. The Bank of England also lends out to the market a small percentage of the UK's own gold reserves.

Many central banks have come to rely on the Bank in introducing them to these gold market activities, which has resulted in even more foreign gold reserves moved to the bank's vaults. And from the first steps of the lending market, they have often entrusted the bank to execute other operations, whether in derivatives or outright sales. Thus the Bank of England has been at the core of widening central bank involvement in gold.

Bank of England
Threadneedle Street
London EC2R 8AH
United Kingdom

Tel.    +44 20 7601 4444
Fax    +44 20 7601 4771
e-mail enquiries@bankofengland.co.uk
Web   www.bankofengland.co.uk