Cyprus has to sell excess gold reserves to raise around €400 million to help finance its part of its bailout, an assessment of Cypriot financing needs prepared by the European Commission showed.

The biggest eurozone bullion sale in four years

Cyprus, one of the eurozone’s smallest economies, has been forced to wind down one of its largest banks and slap losses on uninsured deposits in order to qualify for a €10 billion lifeline from the European Union and the International Monetary Fund.

Gold prices fell around one per cent on the day in the immediate reaction to the draft assessment, heading towards last week’s lowest level since May 2012, after the draft assessment set out plans for the sale of some 10 tonnes, the biggest euro zone bullion sale in four years.

The assessment, obtained by Reuters also said that Cyprus would raise €10.6 billion from the winding down of Laiki Bank and the losses imposed on junior bondholders and the deposit-for-equity swap for uninsured deposits in the Bank of Cyprus.

Nicosia would get a further €600 million over three years from higher corporate income taxes and a rise in the capital gains tax rate.

Of the total Cypriot financing needs of €23 billion between the second quarter of 2013 and the first quarter of 2016, the eurozone bailout fund will provide €9 billion, the International Monetary Fund €1 billion and Cyprus itself will generate €13 billion, the assessment said.

Cyprus’s total bullion reserves stood at 13.9 tonnes at the end of February, according to data from the World Gold Council.

The analysis from the EU and IMF predicts the Cypriot economy will contract by 8.7 per cent this year, following the bailout designed to put Cyprus back on a stable financial footing.

It also shows that the economy will go on contracting through 2014, returning to marginal growth of 1.1 per cent in 2015. At the same time, debt as a proportion of gross domestic product (GDP) will peak at 126 per cent, before falling to 104 per cent in 2020, the debt sustainability report shows.