Precious Metals Gain as Cyprus Back-Tracks on Selling Reserves

Precious Metals Gain as Cyprus Back-Tracks on Selling Reserves

PRECIOUS METAL prices rose Tuesday morning in London, after the finance minister of Cyprus said selling some of the debt-laden Mediterranean island’s gold reserves was “only an option” for raising cash.

“The possibility of selling gold is known, but only as an option,” Harris Georgiades told journalists in Nicosia.

“It will be considered, when the time comes, with options, or rather, all other options.”

Last week the Cypriot president Nicos Anastasiades said that “I want to believe there will never be such a need” for selling some gold reserves.

“The issue is not being discussed by the government, it is a responsibility of the central bank,” he was quoted by Reuters.

Mid-April’s proposal that Cyprus should sell some of its small gold reserves saw the metal drop more than 15% over the next two trading days.

Despite holding only 13.9 tonnes of gold bullion, the idea was seen by some analysts and traders as “the thin end of the wedge” for other debt-laden countries in the Eurozone.

All told, Eurozone central-bank gold reserves total 10,783 tonnes.

That’s more than one ounce in every three held in official-sector bullion vaults according to data compiled by the World Gold Council.

“The April price moves [after talk of Cyprus' gold sale] severely damaged the notion that gold provides any degree of risk protection or really acts as a safe haven,” says a new gold price forecast from analysts at Citigroup.

“We see little prospect of investors returning to gold in the short or medium term,” they add, forecasting a fresh 3-year low of $1100 per ounce by end-2013.

Technical analysis of the gold price charts by Barclays sees gold falling to that level in just the next two months.

Meantime Tuesday, silver followed the gold price higher, regaining the $20 per ounce level, while European stock markets ticked up.

Commodity prices also rose, as did major government bond prices.

“[Gold] investors remain sidelined,” reckons Xiang Nan, analyst at CITIC Securities Futures Co. in Shanghai, quoted by Bloomberg, “before Bernanke’s testimony [to Congress on Wednesday] for clues on the Fed’s stance on monetary stimulus.”

“Gold price gains are expected to stall around $1300 as physical buyers stay away.”

Ahead of the US Fed chairman’s twice-yearly appearance before the House Financial Services Committee on Wednesday, the US Dollar slipped against the Euro single currency.

That capped gains in the Euro price of gold at €986 per ounce, in line with last week’s close.

April’s initial gold sales plan, proposed by Cyprus’ other Eurozone partners, the European Central Bank and the International Monetary Fund, was intended to raise €400 million of a total €10 billion rescue package.

The same quantity of gold bullion if sold at Tuesday’s AM London Gold Fix would have raised only €314 million.

Adrian Ash