The UK’s gold auctions caused gold prices to collapse in 1999
Gold fell significantly from May to August 1999. It made a massive new bear market low. However, silver’s price was completely flat during this time! This selling and divergence between the precious metals can be entirely attributed to the UK Treasury (acting through the Bank of England) to sell its gold reserves.
With gold prices near 20 year lows, the UK Treasury believed that gold would never rise again to the prices of the 1970s and 1980. In what must be one of the worst investment decisions of all time, the Bank of England announced on May 7, 1999 that it would sell almost 60% of its gold reserves between July 1999 and March 2002. The UK would hold an auction every 2 months until this goal was achieved. The UK sold 415 tonnes for an average price of $275 an ounce, which was right near the bear market lows. When the UK stopped selling in 2002, gold prices really started to rise. The UK literally sold at the bottom of the multi-decade bear market, which was immediately ensued by the massive bull market of the 2000’s.
As one could have expected, gold fell off a cliff immediately after May 7. With such a massive new supply coming to market and no other central bank willing to buy that much gold, prices collapsed (no privately owned fund would have been large enough to buy that much gold). The bottom only occurred after the Washington Agreement, which caused gold prices to soar more than 30% within 2 weeks.