LONDON Gold slipped to session lows on Wednesday, pressured as European Commission documents showed Cyprus plans to sell 400 million euros' worth of reserves to finance part of its bailout - a move that 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, 10 tonnes, 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 programme, 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.
Spot gold hit a low of $1,567.54 an ounce and was down 1 percent at $1,568.46 an ounce at 1521 GMT. Gold priced in euros was down 1 percent at 1,199 euros an ounce.
Central banks have been keen buyers of gold since the advent of the financial crisis, acquiring a net 532 tonnes of gold last year, a 48-year high, according to metals consultancy GFMS.
Portugal holds 382.5 tonnes of gold, worth some 14.76 billion euros at current prices, in its reserves, while Spain's holdings stand at 281.6 tonnes, worth 10.8 billion.
Italy is the world's fourth largest gold holder, with 2,451.8 tonnes of gold in its reserves, worth 94.6 billion euros.
"A bearish interpretation would be, where Cyprus leads, others will follow," Turner said. "If those others were Spain or especially Italy, they have very large reserves. But there are good reason to think in this, as in other aspects, Cyprus is a special case."
"No country's gold reserves are sufficient on their own to make more than a small (difference) in their debt position, and they probably think holding gold reserves is better than selling them... if there is a risk you may leave the euro."
(Editing by Veronica Brown and William Hardy)