The day after UK went to war with Germany September 1939 - what happened to gold on Day 2

[Paul]

Thought you guys might appreciate this little bit of history from the past.  Im enjoying a couple of pints in my local CIU club after work and there's Ray in an old chap who is nearly 90 i know is due to move this week over into the local sheltered accommodation close by.  He is in having his usual couple of daily pints & a natter and I say "Hi" as normal, and i notice a yellowed newspaper in front of him and his little clic of folk

I ask if i can take a look. He says, its what they found under the carpets of his house while moving his stuff out, and its a paper of the Daily Mirror from the second day of the War September 4th 1939

Glancing through it and i find an interesting bit on what happened with gold that day and some of the other financial related things that occurred that day

I thought id share here. Enjoy  

 

 

 

Edited July 14, 2023 by Paul

[Petra]

Always great to read these sort of things! How many people actually kept ‘some’ gold under the bed, just in case……?

[bluffer]

interesting in the change of language as well,  the most obvious being to-day and not today as we use   ummm today.

 

wonder how many 18 year olds to-day would volunteer for the armed forces as they did then.  a remarkable generation then indeed.

[Bratnia]

1 hour ago, Petra said:

Always great to read these sort of things! How many people actually kept ‘some’ gold under the bed, just in case……?

Up to 1931 and Sovereigns were one pound coins, as were shillings silver used as coinage, deposited into savings accounts in return for interest (more gold). That ended in 1931 when there was disconnect between the market price of gold and the value of gold in Sovereigns. Too many were withdrawing savings (gold sovereigns) to export and sell for more than a pound each. Similar to how in more recent times the price of copper soared and the mint changed from using copper in penny coins to using copper plated iron. In September 1931 Parliament rushed through legislation to enforce banks to only pay out using paper Pound notes instead of gold (Sovereigns) as the central bank was running very low on gold. I'd imagine that many might still have held Sovereign coins laying around at home, under the bed just in case even 7 or 8 years later at the outbreak of WW2.

With money no longer being gold, the central bank/state could print/spend paper money, hence ever since we've predominately just see inflation (Pound devaluation). Fiat currency (instead of non-fiat commodity (gold/silver) currency).

The US followed that lead and in January 1934 compulsory purchased (nationalised) gold, locking it all up in Fort Knox, forcing the population over to using paper Dollars (fiat).

Edited July 14, 2023 by Bratnia

[SidS]

The situation in the UK is not as clear cut as you might think.

Whilst it is true that Britain was on the gold standard up until 1931 (after a break during and immediately post WWI) it was a different gold standard to the earlier classical gold standard.

Up to 1914 gold sovereigns circulated as money, in what was known as the gold specie standard. With the outbreak of WWI the population was encouraged to pay in their gold for the war effort. In a nut shell this meant that:

1. Gold was not confiscated but people were encouraged to surrender it as their patriotic duty.

2. Gold coins would not be paid out from the banks after that point - and never were again in the UK.

3. Gold could and would be used in currency freely, however once paid into the banking system it was withdrawn and did not come back out.

So gold sovereigns may have remained legal tender after August 1914 but in reality disappeared fairly quickly. There are of course always stragglers and outliers. On contributer to the British Numismatic Journal - Colonel Morreison (iirc) stated that by 1917 sovereigns were very rarely encountered. So by the end of WWI they were gone and never came back (at least in the UK).

There were advertisements in the 1920s and 1930s where pawnbrokers were paying more than £1 for each sovereign.

When the gold standard resumed in the 1920s it was the gold exchange standard. In this the currency was pegged to gold once more and was convertible but only for Delivery Bars - nothing smaller. So this gold standard was only for institutions and international payments between governments. Gold coins did not circulate.

Sovereigns may have continued circulating in the colonies until 1931 however, Australia was still issuing half sovereign notes fully backed by gold until 1931.

Edited to add:

The above is corroborated by the mintages of sovereigns.

London mint produced large numbers up until 1915 - One can surmise that the 1915 dates were in progress at the outbreak of war, or that they expected the war to be over by Christmas. 1916 onwards the mintages reduced and ceased by 1917. Most of these were minted for international payments. The 1925 issue was struck specifically to replace lightweight coins in the reserves. Up until the restrike 1925s issued in the 1940s the 1925 date was virtually unobtainable - as they never left the vaults.

The commonwealth mints continued striking sovereigns until 1931 or in South Africa's case 1932. They probably saw some limited circulation.

Edited July 15, 2023 by SidS

[Bratnia]

Thanks @SidS

Measuringworth indicate gold prices

1900	£ 4.25
1901	£ 4.25
1902	£ 4.24
1903	£ 4.25
1904	£ 4.25
1905	£ 4.24
1906	£ 4.25
1907	£ 4.25
1908	£ 4.25
1909	£ 4.24
1910	£ 4.24
1911	£ 4.24
1912	£ 4.24
1913	£ 4.24
1914	£ 4.24
1915	£ 4.24
1916	£ 4.24
1917	£ 4.24
1918	£ 4.24
1919	£ 4.50
1920	£ 5.65
1921	£ 5.35
1922	£ 4.67
1923	£ 4.51
1924	£ 4.69
1925	£ 4.27
1926	£ 4.25
1927	£ 4.25
1928	£ 4.25
1929	£ 4.25
1930	£ 4.25
1931	£ 4.63
1932	£ 5.90

... relatively close to 4.248/ounce and where as a sovereign contains 0.2354 toz/gold, 4.248 x 0.2354 = £1. So a £1 note paper currency could still be converted into £1 worth of gold via the market, but not directly within banks (putting aside that there'd have been some cost/spread). I can see the appeal of some pawnbrokers paying more than £1 for a Sovereign such as in 1920/1921 when the market price of gold had risen to >£5/oz.

Surprised that the law passed in 1931 to transition over to pure fiat, didn't occur in 1920, as there were the same/similar forces evident, market price of gold > £1 ounce. I suspect that as that fell into the 1914 to 1925 years when war-actions were still in place that it wasn't really a viable option to convert paper Pounds to gold and sell the gold overseas for a profit.

Think I read somewhere that some MiddleEastern international trade settlements still in part include gold Sovereign transfers even today. ???

 

[SidS]

54 minutes ago, Bratnia said:

Thanks @SidS

Measuringworth indicate gold prices

1900	£ 4.25
1901	£ 4.25
1902	£ 4.24
1903	£ 4.25
1904	£ 4.25
1905	£ 4.24
1906	£ 4.25
1907	£ 4.25
1908	£ 4.25
1909	£ 4.24
1910	£ 4.24
1911	£ 4.24
1912	£ 4.24
1913	£ 4.24
1914	£ 4.24
1915	£ 4.24
1916	£ 4.24
1917	£ 4.24
1918	£ 4.24
1919	£ 4.50
1920	£ 5.65
1921	£ 5.35
1922	£ 4.67
1923	£ 4.51
1924	£ 4.69
1925	£ 4.27
1926	£ 4.25
1927	£ 4.25
1928	£ 4.25
1929	£ 4.25
1930	£ 4.25
1931	£ 4.63
1932	£ 5.90

 

Surprised that the law passed in 1931 to transition over to pure fiat, didn't occur in 1920, as there were the same/similar forces evident...

Prestige is the answer to that. The British government wanted to go back on the gold standard. They imposed a lot of pressure on the currency in 1925 to force it back to the pre-war parity, which ultimately led to the depression that followed and eventual abandonment.

[MyPrecious]

Interesting thread, thank you.

[Foster88]

Thanks for sharing @Paul, it’s a wonder some older sovereigns survive at all today. Given that many of these ‘surrendered’ sovereigns would have likely been melted down.