The year Britain sold its gold
The Reset is the phase that decides the most, and the one that looks most like a mistake.
The Phase Pulse
Gold peaked in January 1980, at $850 an ounce.
Eighteen years later, the average price was under $300. Plenty of movement in between, rallies and falls and long stretches of nothing, but the direction of travel was down for the better part of two decades.
Long enough for gold to stop being interesting. Long enough for some of the most sophisticated holders in the world to look at it and decide it was finished.
In May 1999, the British government announced it was selling half the nation’s gold.
The timing turned out to be remarkable, and not in a good way.
For the next four weeks we are going to stay with gold. One asset, one full cycle, from 1999 to 2011. Four phases, in order, with the benefit of knowing how it ended.
This week, the phase that sale was made in.
The Lesson
Last week we met the four phases. Now we start with the first one.
The sale was 395 tonnes of gold, over seventeen auctions, running from July 1999 to March 2002.
The published reasoning was not stupid. Gold paid no interest. It had lost value for twenty years. Foreign currency would earn something. The Treasury’s stated aim was to achieve a better balance in the portfolio.
The weighted average price achieved across those auctions was $274.90 an ounce.
Gold’s low the summer of 1999 was $252.80.
They sold at the bottom. Not near it. At it.
By 2011, gold traded above $1,800.
Now the question worth asking. Why was gold so cheap in the first place?
Not because the market was being irrational. There were real conditions holding it down, and two of them explain most of it.
Supply had flooded. Between 1980 and 1999, annual gold mine production rose from 34 million ounces to 85 million. Two and a half times as much gold coming out of the ground every year. The high prices of the seventies had funded a wave of new mines, and all of that metal eventually arrived.
And cash was paying handsomely to wait. By mid 2000, the US interest rate was 6.5%. Gold pays no interest at all. When money sitting in a bank earns you that much, holding something that earns nothing is genuinely expensive.
There were other factors. But those two alone explain most of twenty years.
Which brings us to the part that matters.
Every one of those conditions was real. Measurable. Documented. The people selling in 1999 were not ignoring the evidence. They were reading it accurately and carrying it forwards.
What they were not asking was whether those conditions could last.
Because a wave of new mines eventually stops being new. And an interest rate of 6.5% is not a permanent feature of the world.
Notice, too, how long all this went on. Gold had been cheap and largely ignored for well over a decade before that sale, and it was still cheap and ignored for two years afterwards.
Phases do not take equal time. A breakdown can be over in a couple of years. A reset can outlast most people’s patience.
That is the Reset. An asset held down by conditions so persistent that everyone assumes they are permanent, at the point those conditions are running out.
And here is the difficulty, the part that stops this being a story about buying cheap things. Plenty of assets are quiet because they are finished. Companies fail. Industries end. From the outside, a Reset and an ending look identical. Both are cheap. Both are unloved. Nobody is recommending either at dinner.
The difference is never in the price. It is in whether the conditions holding it down can last.
Which is exactly what the next three weeks are for. You cannot see a phase turning while you are staring at the price. You can see it in the conditions, and gold’s conditions did reverse, slowly and visibly, for anyone who knew to look.
The Investor Mind
Understanding the conditions explains the market. Understanding the psychology explains why almost nobody acts on it.
So imagine holding gold in 1999.
No headlines. Nobody at dinner asking what you think. Twenty years of being wrong behind you, and no way of knowing how many more are ahead. Your own government selling theirs, publicly, with reasons attached.
This is why the Reset is the phase almost nobody occupies. Not because it is hard to spot afterwards. Because there is nothing to hold onto while you are inside it.
A crowded phase gives you constant reassurance. Everyone agrees. The price confirms you daily. The story is everywhere. The Reset offers none of that.
Being early and being wrong feel exactly the same from the inside. And they can feel that way for years.
Which is why understanding matters more here than anywhere else in the cycle. Conviction built on the price will not survive a decade of the price saying nothing.
The Aha
The people who sold in 1999 had good reasons, written down, with twenty years of evidence behind them.
They were reading the conditions correctly.
They just assumed those conditions would hold.
A price tells you what has already happened. It cannot tell you whether the thing keeping it low is permanent or simply running its course.
Once you know phases exist, cheap stops meaning finished, and it stops meaning opportunity too. It becomes a question instead.
Not: is this cheap. But: can the reason it is cheap continue?
That question rarely has an obvious answer. It is still a far better question than the price alone allows you to ask.
Every new cycle begins while the old story still feels true.
Your Money Moment
Think of something you own that has done nothing for a long time. A fund, a holding, a sector you bought into and then stopped looking at.
Is the reason you bought it still true?
Not: is it working. Not: what did it do last month.
Is the reason still true.
And if the honest answer is that you never really had one, that you bought it because it was what people do, that is worth knowing too. It is the most common answer there is.
Those are completely different questions, and only one of them can be answered by looking at the price.
Next week, the Build. The years when the conditions quietly reversed, and almost nobody noticed.
The Phase Report
At the end of this month, the first Phase Report goes out.
The Sunday issue stays free. That does not change. This is where the teaching lives, one concept at a time, in order.
The Phase Report is different. Once a month, I take each of the major asset classes and look at what actually moved beneath the headlines. What changed in the conditions. What the charts show and which phase each one appears to be sitting in.
These four weeks on gold are teaching you how to read the map. The report is me showing you the map I am reading now.
Twelve a year. Cycles move over years, not weeks. Monthly is often enough to see conditions shifting, and rarely enough not to mistake noise for change.
$15 a month, or $150 for the year.
If the free issues are all you ever want, that is genuinely fine. Nothing is being taken away and nothing is moving behind a wall.
Subscriptions are open now if you would like to be there for the first one.
Catherine x
Phase first
Phase First is for educational and informational purposes only. Nothing here constitutes financial advice or a recommendation to buy or sell any security. All investing involves risk. I am a Fellow Chartered Accountant, not a regulated financial adviser. You are responsible for your own financial decisions.