Should Portugal and Greece be told to sell their gold?

Section:

By David Cottle
The Wall Street Journal
Thursday, May 5, 2011

http://online.wsj.com/article/SB1000142405274870399270457630472226332577...

Why shouldn't cash-strapped European countries be forced to liquidate their gold holdings, German politicians have been asking.

Prices, after all, are close to historic highs. Moreover, bullion is the ultimate hedge against an economic rainy day, and it's certainly pouring down in Greece, Portugal, and Ireland.

The first two are sitting on substantial gold reserves. Portugal has nearly 383 tons and Greece around 112, according to the World Gold Council. Indeed, Portugal's hoard comes to about 9% of its GDP, which is the highest proportion in Europe. Greece's is a much lower 1.7%.

Portugal's holding would be worth $18 billion at current market rates, which would be a handy offset to the E78 billion ($108 billion) bailout it has just accepted from the European Union. On the face of it, there is an absurdity here. How many of us would toss a dime to a beggar if we knew he had an ingot or two stashed under his sleeping dog?

... Dispatch continues below ...



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Company Press Release, October 27, 2010

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Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface.

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Not Norbert Barthle, Germany's governing coalition budget speaker, it seems, nor his counterpart Carsten Schneider from the Social Democrats. They have urged Portugal to consider selling some of its gold pile to ease debt woes and therefore reduce the cost to German taxpayers of bailing it out.

Unfortunately for the pair, market economics are never quite as simple as they look, even when considering arguably the simplest asset of all.

Both Greece and Portugal have signed central-bank agreements not to destabilize the gold market, and announcing an imminent dump of their reserves would certainly do that.

Moreover, as one gold dealer said: "Selling reserves has a finality about it; you never get them back. Governments can tell their people that there is some benefit at the end of austerity and reform, but not at the end of selling gold to plug a debt hole."

Even so, central banks in cash-rich exporting countries are accumulating gold despite the high prices. The Bank of Mexico snapped up a hundred tons between February and March, so there's clearly an appetite for large amounts.

Monument Securities strategist Marc Ostwald is one analyst who doubts a straight gold sale is likely from either nation, as it would be too destabilizing for a market already looking nervous at such lofty peaks.

But there is no reason, he said, why the gold of debtor states shouldn't be used as collateral in repurchase agreements, lent out and bought back later at a small premium, which would represent the interest on the cash paid.

"I think some sort of repo deal using gold might make sense," he said, "although of course this would really be no more a long-term solution to these countries debt problems than the bailouts are."

In the end, Europe's debtor states, perhaps, are haunted by the memory of the last high-profile national gold seller, the U.K. Deeming the metal too volatile to its Treasury, under then-Chancellor of the Exchequer Gordon Brown, it sold off nearly 400 tons between 1999 and 2002.

Prices were at their lowest in 20 years, and advance notice of the U.K.'s intent drove them lower by 10%, to $252 an ounce, by the time of the first sale in July 1999.

Twelve years on, and with gold trading in the vicinity of $1,500 an ounce, that nadir is still remembered as "Brown's Bottom."

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Prophecy Resource Spins Off Platinum/Palladium Venture:
World-Class PGM Deposit in Yukon

Company Press Release, January 18, 2011

VANCOUVER, British Columbia -- Prophecy Resource Corp. (TSX-V:PCY)and Pacific Coast Nickel Corp. announce that they have agreed that PCNC will acquire Prophecy's Nickel PGM projects by issuing common shares to Prophecy.

PCNC will acquire the Wellgreen PGM Ni-Cu and Lynn Lake nickel projects in the Yukon Territory and Manitoba respectively by issuing up to 550 million common shares of PCNC to Prophecy. PCNC has 55.7 million shares outstanding.

Following the transaction:

-- Prophecy will own approximately 90 percent of PCNC.

-- PCNC will consolidate its share capital on a 10 old for one new basis.

-- Prophecy will change its name to Prophecy Coal Corp. and PCNC will be renamed Prophecy Platinum Corp.

-- Prophecy intends to distribute half of its PCNC shares to shareholders pro-rata in accordance with their holdings.

Based on the closing price of the common shares of PCNC on January 17, $0.195 per share, the gross value of the transaction is $107,250,000.

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http://prophecyresource.com/news_2011_jan18.php