"This is only part of a draft proposal from the European Commission and may well come to nothing," Jessop said in a note on Thursday. "More importantly, any resulting sales would be trivial – perhaps less than 10 tonnes in a global market where demand has been running at an annual rate of around 4,800 tonnes."

"There would also be significant political and legal obstacles, which may yet prevent even Cyprus from selling its gold. For a start, gold reserves are typically owned by national central banks which are forbidden (by EU Treaty) from directly financing government borrowing. But the most important barrier is simply the weight of public opinion," he said.

"At most, gold might be used as collateral for some government debt (an idea being promoted by the World Gold Council). However, the chances of large outright sales are very slim," he added.

Eoin Treacy's view Gold pulled back sharply yesterday as the market fretted about the possibility that not only Cyprus but other countries might seek to raise cash by disposing of gold reserves. Whether credible or not, the fact that prices have not rebounded emphatically on the denial of this rumour suggests that gold is in need of a catalyst to spur investment demand.

The Total Known ETF Holdings of Gold trended consistently higher from 2003, finding support in the region of the 200-day MA on successive occasions. It broke downwards in early March and continues to extend its decline. A sustained move above 80 million ounces would be required to begin to question medium-term supply dominance.

While Cyprus represents a potential 10-tonne sale, ETFs represent a hoard of 2425 tonnes and are therefore a much more important arbiter for the price of bullion. Gold has held a progression of lower rally highs since October and a sustained move above $1625 will be required to confirm support in the current area.