Can gold save the PIIGS?

Politicians from the euro-core countries are raising more cries that further loans and rescue packages to the periphery be backed by collateral of some kind, there have even been calls that if any so-called eurobonds are issued they should be backed by gold. However at current gold prices any gold collateral or even gold sales would be a drop in the bucket compared to the outstanding debt of the so-called PIIGS.

Technically, governments of euro area states don't even have access to their gold since these gold reserves are managed by their central banks, which are independent from local political influence and must comply with ECB rules. According to Natalie Dempster, Director of Government Affairs at the World Gold Council (WGC), central bank currency and gold reserves are earmarked for specific purposes: traditionally as backing for a country's currency, foreign exchange intervention or international trade settlement.

At current gold prices, Portugal's gold reserves of 382.5 tons would only be worth around €15 billion, next to the Portuguese government´s approximately €80 billion bailout loan package from the EU and the IMF, it does not seem much. Both Greece and Portugal seem to be in need of another bailout. Even Italy, which has been the focus of attention in recent weeks, could only make around €95 billion by selling its 2,450 tons of gold at current prices. Troubled eurozone countries would certainly not be making a wise move by selling or encumbering their one remaining monetary asset, especially at current prices. Despite recent rises in the price of gold it remains at historically undervalued levels and remains the one monetary asset that is not joined at the hip to the dollar and the euro as part of the post-Bretton Woods Nixonian international fiat currency system.