If Gold < $1175, Then Cyprus Out Of Eurozone?

Tyler Durden's picture

One of the unexpected consequences of the recent plunge in the price of gold (for whatever reason, and there are many proposed explanations for why gold has tumbled, none of them completely accurate or comprehensive) is that when the European Commission set the precedent with the forced sale of Cypriot sale for a total of €400 million "to cover ELA losses" as Mario Draghi dictated to the aptly named head of the Cyprus Central Bank, Panicos, he set a line in the sand especially when it comes to German expectations. Because while the size of the Cypriot bailout will likely keep expanding, the one fixed component is the €10 billion loan that Merkel has still to get approval for in parliament. This number is set in stone, and any additional bailout "funding" will have to come from either further depositor impairment (until eventually even the insured depositors become impaired, again) or as the case may be, the country is forced to sell all of its sovereign hard assets, like its gold. Which means that no matter what, Cyprus will have to sell enough gold to cover a €400MM shortfall, as point 29 of the Debt Sustainability Analysis demanded.

And therein lies the rub.

While a week ago, when gold was $1600/ounce the self-funded component (read "gold sale") of the Cypriot bailout amounted to just over 10 tons of gold, as of today's price and EURUSD rate, Cyprus would now have to sell 12 tons of gold to cover the gap, if it were to hit the sell button today (assuming a price of $1385/ounce and a 1.315 EURUSD exchange rate). As far as we know, Cyprus hasn't sold one ounce yet. But what if gold keeps tumbling as it has in the past three days? Well, the problem as most know, is that as of March based on IMF data, Cyprus only has 13.9 metric tons of "excess" (as the EC defined it) gold.

This means one can extrapolate below what price Cyrpus is out of luck and the proposed European Commission bailout fails as one of the key self-funded elements simply will not have enough cash to fill the €400 MM hold.  That price for gold, once again assuming a 1.315 EURUSD, is roughly $1175/ounce.

So if the coordinated selling (straight to Goldman's traders) were to continue, and gold did plunge to the threshold price, or even drop into triple digit territory, and Cyprus simply did not have enough gold to sell, what then?

Will the Cyprus rescue operation fail?

Will the European Commission make a market in spare body parts and demand every odd Cypriot sell an excess kidney?

Or will the ECB simply realize it is too much of a hassle, and instruct the BIS, which has so far been selling paper gold (on margin), to ramp the price higher?

Inquiring minds want to know, because with all the central planning out there, someone has to think outside the box.

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Vesuvius's picture

The threat of taking your money out of the bank, austerity, & lack of work unions to keep pay up leads to deflation. Deflation stops china & other countries from buying USTs because they don't need to devalue their fiat anymore relative to the USD. UST yields going up and the overvalued USD decreases US manufacturing production; both lead to less US gov money. What next? More money printing or higher taxes? Hyperinflation?How? Deflatiinary death spiral? Other?

hedgeless_horseman's picture

 

 

Those that would buy Cypriot gold with Euros do not understand the political capital invested in Europe.  They vastly underestimate what the Euro means for the Europeans, for the Euro area.

Pladizow's picture

From gold teeth to Cypriot gold, Gemany's lust for the yellow metal endures!

hedgeless_horseman's picture

 

 

Sadly, it appears to be a Cypriot surrender flag, as opposed to a battle standard. 

The bankers accept, unconditionally, of course.

knukles's picture

This is so Ironic it's funny.
The barbarous traditional relic drops below a threshold price so as to make the transfer impossible at the contracted terms.  When likely the price smackdown was done with the consent of the central banks...
As if according to Paul Krugman, gold means anything anyhow and that collecting it is nonproductive.

Wait.... now it all makes sense.  Non productive assets being held by non productive governments...
Hmmmmm

Bearwagon's picture

As if of all people the germans have been asked ...

Arius's picture

if you really believe this is about Cypruss gold i got a bridge to sell ... and Yes, I do accept CASH!

common man this is one of the worse sales in 20-30 years and for what ... Cypruss ... right ... thats where is the New Center of Universe ... thanks for clearing it up!

Bearwagon's picture

I could use a bridge. The bigger, the better, and long, please. After I placed it as collateral at the ECB, I will gladly pay you 5 % of their loan on it, which should at least be 10 billion Euro, the following tuesday.  ;-)

Arius's picture

you know which one ... it has been standing for a long long time next to the Wall of Power ... go and claim it - if anyone gives you any problem just let me know.  please send the wire to the following:  :)

MeelionDollerBogus's picture

Have I got a deal for YOU! I can sell you a bridge for only the price of 1/10th of a normal bridge, the rest of which will be produced for you by re-hypothecation using new Bridge-Pothication Technology (patent pending)

http://www.thinkartificial.org/artificial-intelligence/evolving-lego-bri...

uhb's picture

<sarcasm>

Und jetzt alle:

Deutschland, Deutschland üüüüüüber alles....

Third try is lucky!

</sarcasm>

 

 

Bearwagon's picture

The borders don't fit anymore. Maas and Memel have not been german for a long time ... that much for the third try ...

asteroids's picture

No, Cyprus should sell every single fucking ECB bond they have and keep their gold. They can use that to back up a new Cypriot pound/drachma/whatever.

YC2's picture

People that don't read this website regularly must get thrown by the sheer number of sarcastic posts not labeled as such.

Bearwagon's picture

Well, they should know this is ... uhm... shit ... I promised, not to talk about it ...

SafelyGraze's picture

first rule of zh: all replies are sincere

-Paul K

NotApplicable's picture

I read all posts here in a sarcastic tone (other than the ones I ignore all together).

Other than all of the "our government/leaders" idiocy, it works pretty well.

Professorlocknload's picture

Got it. Sarc. I was going to ask for clarification, but you cleared it up for me.

My comment would have been if I was sitting on a pile of Euros I would do my part to support the great euro utopian experiment by trading it for all the gold I could get ANYWHERE, just to get those notes back into circulation, mind you.

s/?

 

Oldballplayer's picture

Shit!  They are sarcastic?  And they are not marked?  I have been basing all of my investment decisions here (and Yahoo, of course.)

 

Maybe thats why I am broke.

trader1's picture

are you trying to say that you enjoy life better without zerohedge?  ;-)

forwardho's picture

H.H. this is the second time you have made reference to this political capital in EU.

Please elucidate, seeking only knowledge.

 

NotApplicable's picture

It was a recent Draghi response to a reporter who won't have the opportunity to ask any more questions (as he used the phrase Zero Hedge).

http://www.zerohedge.com/news/2013-04-04/mario-draghi-responds-zero-hedg...

roadhazard's picture

He got it from Sir Jack Meoff.

Ghordius's picture

Hedgless really likes what Draghi answered to ZeroHedge's question, not long ago. see here the ZH article

but he seems to me to misunderstand the statement, particularly on what political capital means - it's in fact something Anglo-American politicians would probably never say this way

meanwhile Tyler is only hinting about certain things in the article (for example about the BIS involvement's in the gold smash) - and so treating them as rumours, and hedgless swallows bait, hook and sinker

political capital is actually a simple concept: any politician asking for an exit of the eurozone automatically puts himself in the position of having to promise something. and being able to explain why and how an exit would help the country. this means a serious party would have to pledge itself to a course, to which a serious debate would have to follow, and questions would have to be answered

and since most of it would hinge around vague things like "and then we devalue and so all our creditors get stiffed" it's a though position

because you see, until now the EUR delivered. price stability. nothing else, no. that wasn't the deal anyway. a single focus on price stability even during a full blown currency war where the Squid and the Morgue mount attacks like the one on gold

and since many continental europeans remember the times their currencies were under attack, they realize that leaving the eurozone with a small currency is akin to leaving the herd and be the new plaything of the megabanks

forwardho's picture

Thank you for your time and responce!

I come to learn from others with greater understanding.

 

 

StychoKiller's picture

[quote]...since many continental europeans remember the times their currencies were under attack, they realize that leaving the eurozone with a small currency is akin to leaving the herd and be the new plaything of the megabanks. [/quote]

What this tells me is that Govts, especially smaller ones, should NEVER print too much currency!

Ghordius's picture

btw, regarding this new meme of "stealing Cyprus's gold" and similar things involving Panicos Demedriades, the Cypriot NCB president, here a very interesting article in the Cyprus Mail - in English

http://www.cyprus-mail.com/features/nation-s-anger-homing-central-bank-g...

my favourite part: "On March 18 ... Demetriades wanted the banks to re-open the following day, but President ... Anastasiades put a stop to it ..."

as I was suspecting all the time, the decision to keep the banks closed was not "technocratic", it was political

forwardho's picture

Ghodius, Thanks for link.

The central banks decisons are all political. With the impact they have on their respective countries, they would have to be, yes?

Ghordius's picture

sometimes when people talk or write they reveal more about themselves than about what they want to convey

let's put it this way: your question is very... uncontinental (which reminds me Marylin Monroe's song "Diamonds")

ponder about one little thing: the confederation of national/central banks called ECB has one mandate: price stability

the FED, the Bank of England, the Bank of Japan, etc. etc. have usually several mandates, besides what politics gives them

hedgeless_horseman's picture

 

 

...the confederation of national/central banks called ECB has one mandate: price stability...

Funny, I thought it was a Thousand-Year Reich.

Ghordius's picture

hedge, you are smarter than that. who is the grand hegemon of this planet? who spends 50% of global military expenditures? who has the biggest centralized, powerful & militarized government in history?

not us

meanwhile, what's so bad in forming political bonds that might result in a third version of the "empire"? The word means "out of many nations", too. what is so terrifying in this?

your own country was made out of peoples of many nations

are you sure you know enough of version 1 & 2? Or did you watch too much footage of that moron's attempt? Do you understand how much that changed us, too?

13thWarrior's picture

 

The gold price is fixed by bankers and not free markets.

The current five participants in the gold fixing, who must be members of the London Bullion Market Association, are:

 

Scotia-Mocatta — successor to Mocatta & Goldsmid and part of Bank of Nova Scotia

Barclays Capital — Replaced N M Rothschild & Sons when they abdicated

Deutsche Bank — Owner of Sharps Pixley, itself the merger of Sharps Wilkins with Pixley & Abell

HSBC — Owner of Samuel Montagu & Co..

Société Générale

 

earleflorida's picture

you forgot... AIG getting out ~3 months later at the advise of n m rothschild's

Note: gordon brown sells 60% of london's gold at bargain-basement prices between 1999-2002... guess what house bought the gold-- it begins with a 'red shield!'???

please check the event and timelines ... start 2004

barclays plc sells barclay global [etf /ishares] to BLK. inc and the fink who runs the prop'desk for benji after they buy up lehman's trading house for peanuts [~$347ml]-- N.M. Rothchilds llc. buys up the other half, lehman bank n.a. for~ $10 bn.  

when does lehman actually break the ?buck?, and what jpmc dimon did too diamond? inquiring minds want to know....

13thWarrior's picture

The list is current but the banks keep changing so it is possible.

LawsofPhysics's picture

What, no J.P. Morgan?  Something is amiss.

earleflorida's picture

conflict of collusion where naught even a plausible denial could pacify someone's 'moar'esque thingy'... often referred as -- 'an amorphous consciousness'?

auric1234's picture

I thought JPM only sold counterfeit silver.

 

Panafrican Funktron Robot's picture

Funny, those look a lot like the banks that set Libor.

McMolotov's picture

What next? More money printing or higher taxes? Hyperinflation? How? Deflationary death spiral? Other?

War and oppression.

LawsofPhysics's picture

Correct, the "flation" debate is stupid.  It is a distraction, there is no debate, this is and always has been about power and control over resources, period.

Professorlocknload's picture

 " about power and control over resources, period."

 

  Agree, this is the Great Re-consolidation, funneling power back to a hand full of "cores."

 Peripheries all go back to subservient existences. And if a German gets a gun, you don't want to be a Frenchman.

Vesuvius's picture

1933 gold confiscation depression & then WWII, so you may be right!

TheGardener's picture

"What next ? War and oppression". Sad call but probably true.

Zero hedge ? Just gold and defiance ?

Resilience. No bets , nor hedges.

Seer's picture

Seems that a positive for the USD could be had by dropping gold further then: Dr. Paul Craig Roberts suggests that the current attack on gold is a play to protect the USD (http://www.paulcraigroberts.org/2013/04/13/assault-on-gold-update-paul-c...).  If this pushes Cyprus under the waves then they'll have no other choice than to bail from the EU; and if they do then that would expose the emperor as wearing no clothes, the EU, the euro specifically, being crap.  Gold down, gobbled up by US powers, AND USD protected.  It's still, however, a race to be awarded the best looking horse at the glue factory...

ebworthen's picture

The bailout will fail no matter what as it is designed to fail.

How else can the ECB and the IMF enrich themselves if there isn't an ongoing crisis by which they can raid depositor's accounts, taxpayer's wallets, and continue to foist austerity on already taxed entitlements?

The same could be said of the U.S. FED, which needs perpetual crisis to continue to bail out the banks on the backs of taxpayers.

Seer's picture

Of course it'll all fail.  There's no more growth AND they're major energy importers: Japan is showing EXACTLY how this plays out; Europe just has all these other moving parts that tend to make it hard to see the core of what's going on.

Lost Wages's picture

What is the spot price on kidneys today? Can someone check with China? They take them from the Falun Dafa practitioners over there.