Harvard’s Rogoff: Gold Sales Won’t Solve Europe’s Woes

It has been suggested that European governments unload some of their massive gold holdings to shore up their shaky finances. So what does Harvard economics professor Kenneth Rogoff, who has studied official gold reserves, think of the idea?

It’s a no go, he says. First and foremost, they don’t have enough gold to do the trick.

"If they sold their gold, I'm not sure it would do anything to their credit rating," Rogoff tells The Wall Street Journal. "This is not exactly a game changer."
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A few statistics are telling. In Greece, government debt totals 143 percent of GDP, while gold amounts to 2 percent of GDP. In Italy, it’s 119 percent for debt and 7 percent for gold. In Spain, it’s 60 percent for debt and 11 percent for GDP.

Kenneth Rogoff (Associated Press photo)

In addition, using gold for loan collateral or selling it outright would probably convince investors that Europeans are desperate, which would likely push down the value of the gold they were selling.

It would also likely send European governments’ borrowing costs higher, as investors shied away from their debt, accomplishing exactly the opposite of what was intended.

While gold has dropped in recent sessions, with the precious metal hitting a five-month low of $1,587 an ounce Wednesday, some investors remain bullish.

“Investors with a medium- and long-term view are remaining loyal to gold, and gold ETFs are still showing no outflows," Commerzbank analysts write in a note obtained by Reuters.