The pound sterling is the official currency of the United Kingdom (and some British Crown Dependencies or Overseas Territories, such as Jersey, Guernsey, the Isle of Man, Gibraltar, South Georgia and the South Sandwich Islands, Saint Helena, Ascension and Tristan da Cunha, or the claimed British Antarctic Territory). The currency is managed by the Bank of England, based in London. Its international code is “GBP”, while its symbol is £. 

The pound is a currency of the sixth to ninth largest economy in the world (depending on the calculation method) and the former empire, while London remains one of the biggest financial centers in the world. For these reasons, the pound is the fifth most-held reserve currency in the world and the fourth most-traded currency, after the U.S. dollar, the euro, and the Japanese yen. The pound also belongs to the currency basket of the IMF, which back the special drawing rights.

Just as the greenback, the pound sterling is fiat currency, prone to inflation (for example, the annual rate of CPI reached 27 percent in 1975) and crises (the most famous is the Black Wednesday from 1992 when the British government was forced to withdraw the pound sterling from the European Exchange Rate Mechanism).

Pound and Gold
The pound sterling is one of the most important alternatives to the U.S. dollar among fiat currencies. This is why there is often a positive link between the pound and gold (the late 70s or the 2000s can be the examples of such periods): both assets have negative correlation to the greenback. However, the relationship is far from being a perfect correlation, as one can see in the chart below.

Chart 1: The GBP/USD exchange rate (red line, left axis) and the price of gold (yellow line, right axis, London P.M. Fix, in $) from January 1971 to October 2019.

USDGBP and Gold Chart

This is because gold is not merely an alternative to the U.S. dollar, but also to all the other fiat currencies that make up the current monetary system. Therefore, in some cases the pound and the dollar both lose (or gain) ground against gold, while in other cases – Brexit is the best example here – both the greenback and gold behave as safe-haven assets against the risks related to the UK.