Greece is unlikely to resort to selling gold because disposing of the hoard valued at about $4.3 billion would only postpone a default, Commerzbank AG said.
Bullion prices would probably fall if the nation were to sell metal on the open market, Commerzbank said in a report Friday. Using gold to raise funds may mean selling to another central bank or the International Monetary Fund, or lending out the metal, it said.
Greece is edging closer to an exit from the euro after talks this week to reach a deal over aid ended in frustration. For Greece to use gold to pay the IMF the 1.5 billion euros ($1.7 billion) it owes by the end of the month, it would mean selling about 40 percent of its gold reserves.
“Selling gold would deprive the country of its only really valuable reserves, which could be put to good use at a later date, perhaps to stabilize a new currency if Greece exits the euro,” Commerzbank analysts including Frankfurt-based Eugen Weinberg wrote in the report. “We think it very unlikely that Greece is willing to go down this path.”
The value of Greece’s gold reserves amount to about 1 percent of its government debt, Commerzbank said. The country owns 112.5 metric tons and is ranked the 30th-largest holder by country, according to the London-based World Gold Council. The metal makes up about 66 percent of its foreign reserves.
Selling into the open market would probably not be compatible with an agreement made between European central banks to avoid large disposals that would disrupt the market, Commerzbank said. That leaves possibly selling to another central bank directly to limit the impact on prices, it said.
Swapping or lending gold may be attractive because Greece could regain the metal at a later date when liquidity has improved, according to Commerzbank. Gold was at $1,198.90 an ounce in London, according to Bloomberg generic pricing.
“Insolvency will only have been postponed by the sale of gold,” the bank said. “When Cyprus was on the brink of default just over two years ago, there were similar rumors of selling gold reserves which ultimately proved to be unfounded.”