Cyprus to Liquidate Most of Its Gold Reserves

Cyprus plans to sell 400 million euros' worth of reserves to finance part of its bailout, according to European Commission documents. This move marks the biggest euro zone bullion sale in four years. At current prices, 400 million euros' worth of gold amounts to 10.36 tonnes of metal.

Reuters
10 Apr 2013
CNBC

Cyprus plans to sell 400 million euros' worth of reserves to finance part of its bailout, according to European Commission documents. The move marks the biggest euro zone bullion sale in four years.

Although obstacles stand in the way of euro zone central banks selling gold to meet financing needs, the Cypriot move will focus attention on other heavily indebted euro zone gold holders.

The sale plan, set out in a draft assessment of Cypriot financing needs prepared by the European Commission,would be the first major gold disposal by a euro area central bank since France sold 17.4 tonnes of gold in the first half of 2009.

"The amount mentioned, 10t onnes, is not large — we've seen that on average come out of exchange-traded funds this year every week," Macquarie metals analyst Matthew Turner said.

"But it's the first euro-zone country to have said it will do this, and the first euro-zone country to sell gold, other than Germany's coin program, for a while."

At current prices, 400 million euros' worth of gold amounts to 10.36 tonnes of metal. Cyprus' total bullion reserves stood at 13.9 tonnes at end-February, according to data from the World Gold Council.

The Fed's Impact

Gold prices settled lower at $1,558 an ounce on Wednesday following that news of Cyprus selling its gold and after Federal Reserve minutes showed some policymakers expect to slow the pace of bond purchases.

Gold was last off 1.4 percent at $1,561 an ounce. U.S. gold futures lost $27.90 an ounce to settle at $1,558.80 an ounce.

Gold was last off 1.4 percent at $1,561 an ounce. U.S. gold futures lost $27.90 an ounce to settle at $1,558.80 an ounce.

According to an early release of minutes of the Fed's March meeting, a few U.S. Federal Reserve policymakers expected to taper the pace of asset purchases by midyear and end them later this year. Several others expected to slow the pace a bit later and halt the quantitative easing program by year-end.

Prospects of interest rates climbing later in the year could cause some investors to rethink the need to hold higher-yielding assets like gold. It would also inhibit the ability to acquire cheap money to purchase gold, which would be viewed as less needed as a safe haven in an improving economy.

"A few members felt that the risks and costs of purchases, along with the improved outlook since last fall, would likely make a reduction in the pace of purchases appropriate around midyear, with purchases ending later this year," minutes from the March 19-20 meeting said on Wednesday.

While the Fed's scheduled release time for the March 19-20 meeting minutes was 2 p.m. EDT, they sent them out several hours early because of an accidental release on Tuesday.

The March payrolls report, which was released after the FOMC meeting, showed weakness in the U.S. labor market, prompting some analysts to express doubts about the Fed's reducing or ending the bond-buying program early.

Softer investor confidence in the metal after a fresh outflow from the world's largest gold exchange-traded fund and a further forecast cut from Goldman Sachs also weighed on prices.

The precious metal traded in its widest weekly range since mid-February last week, sliding to a 10-month low at $1,539.74, as funds favored other assets such as equities, before rebounding sharply on the back of weak U.S. jobs data.

Goldman Sachs Cuts Forecast

Goldman Sachs cut its 2013 gold price forecast for the second time in six weeks, to $1,545 an ounce from $1,610, a day after UBS cut back its price view for this year. It is targeting a gold price of $1,450 an ounce by year-end, it said.

"With our economists expecting few ramifications from Cyprus and that the recent U.S. slowdown will not derail the faster recovery they forecast in (the second half of 2013), we believe a sharp rebound in gold prices is unlikely," Goldman said in a report.

The world's largest gold-backed exchange-traded fund, New York's SPDR Gold Trust, reported a further outflow from its gold holdings on Tuesday of just under five tons, bringing its outflow for the year to more than 150 tons.

Gold-backed ETFs tracked by Reuters have recorded outflows of 195 tons so far this year.

Silver slid 0.7 percent at nearly $28 an ounce. The metal rallied 2.5 percent on Tuesday, its biggest one-day rise since mid-February.

The gold/silver ratio, which measures the number of silver ounces needed to buy an ounce of gold, pulled back from last week's eight-month high as silver outperformed. An ounce of gold now costs 56.8 ounces of silver, down from 57.9 on Friday.

Palladium fell to its lowest in three months under heavy selling pressure in an overly long market, traders said, with liquidation picking up as it broke through key chart levels.

Spot palladium trimmed losses to 0.8 percent at $718 an ounce, having fallen as low as $702.97. Spot platinum was down 1.3 percent at $1,526 an ounce.

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