Is it the time for the euro zone to take advantage of the gold reserves?

Gold price could rebound after Mario Draghi, president of the European Central Bank speech

Is it time for some euro zone governments to begin to sell the family silver as a metaphors? Or more specifically to consider in its gold reserves very real, to find a solution to the crisis in Europe?

This is the question that has spread recently in some political circles and investments. Whenever approached autumn it became clear that the euro area is still under deep pressure. However, it also is not clear whether the European Central Bank – not to mention the politicians in the euro zone – would really be able to do anything soon to allay the fears of the market and reduce the cost of borrowing.

Thus, while increased discomfort, ask the World Gold Council – or the body that represents the gold industry – Finally a new idea into the fray: They believed that the time had come for eurozone governments to start using gold in an innovative way, especially in places like Italy, to reduce those interest rates.

The issue revolves around an estimated ten thousand tons of gold reserves, which are currently subject to eurozone governments. According to the Council,” It is known that some of the countries most affected by the crisis, including Portugal and Italy, are responsible for a large proportion of these assets”.

Not surprisingly, that this situation has prompted some to suggest that governments should sell some gold, rising value of gold over the past few years, and if there is time needed when euro zone countries to the surprise of unexpected – for example, to pay interest on bonds – will be now. But he insisted Gold Council, for its part, that this would be a mistake. Apart from the fact that the enormous amount of gold will reduce the price, the debt crisis in the euro zone has now become so large that gold sales do not address only a small part of the problem. Or as noted:” The gold holdings of the countries of the euro zone hit by the crisis (Portugal, Spain, Greece, Ireland, Italy) represent only 3.3 per cent of the debt owed by joint central governments of those countries”.

And therefore prefers suggest alternative idea: instead, it must on the euro-zone countries mainly securitize part of this gold, through the issuance of government bonds, which supported gold. And can be done in a simple way; or can be organized to include different batches of risk. In both cases, the key point is that gold is used to provide additional security for the bonds – and then, to reassure investors and who do not trust the budgets of eurozone governments any more than that.

Can reduce the use of only a portion of these reserves of gold as collateral to a large extent from the price at which each of these (margin) countries to get rid of the debt”, and the point of view of the Council, pointing out that this scheme was employed on a few occasions in the historically. In the seventies, for example, Italy and Portugal used their gold reserves as collateral for loans from the German central bank, the Bank of International Settlements and other creditors. In recent times, India got a loan from Japan, backed by gold.

Is there any chance that this idea can be dispelled? Do not hold your breath, or even soon. Personally – self-service leave interest aside Gold Council planned to pay – I think that the concept of gold-backed securities definitely worth discussion. While not going to be gold-backed securities a full term solution, but can help in some ways.

But there is little evidence that the idea has got serious support from policy makers so far. Even if the euro zone leaders have to adopt the idea, there will be some big legal hurdles, most notably, central banks own a lot of gold, not tanks.

However, if nothing else, investors should take note of the discussion as interesting straw in the wind. A decade ago, it looked just as old-fashioned when he suggests that any investor would put gold as collateral, in the age of Internet finance, securities, such as Treasury bonds, tended to by law. But in recent months begun LCD HP and the Chicago Stock Exchange increasingly to accept gold as collateral for margin requirements for derivatives trading. Earlier this summer issued by the Basel Committee on Banking Supervision and the discussion paper suggests that gold should be one of the six items used as collateral for margin requirements for trading derivatives central clearing, along with elements such as Treasury bonds.

This is not promoted to the level of a revolution, not to mention the type of step towards gold-backed financing – or the gold standard – who likes gold investors (and some members of the U.S. Republican Party) to see him. But indicates that the slow evolution of the positions being – and not much in terms of the desire for gold in itself, but increasingly in the lack of desire and the risk of other assets which they are supposed to” safe”, such as government bonds. This pattern is unlikely to change soon, especially as the market waiting to see what might be revealed ECB on September 6