* Bullion has "special role" in cenbank reserves
* Gold value not tied to politics, institutions
By Jan Harvey and Clara Denina
ROME, Sept 30 Keeping gold reserves is a key
support to central banks' independence, an official from Banca
d'Italia told a bullion industry conference on Monday, dampening
talk that it might sell some of its holdings.
Speculation has emerged since the financial crisis hit the
euro zone that Banca d'Italia might be pressured to leverage or
even sell some of its huge gold reserves - the fourth largest
among the world's central banks - to help prop up its economy.
Regulations covering central bank independence restrict them
from using bullion reserves this way, but concerns grew after an
assessment of Cypriot financing needs prepared by the European
Commission showed Cyprus under pressure to sell gold to raise
around 400 million euros (341.1 million pounds) to help finance
In a keynote address to the London Bullion Market
Association's annual conference, Salvatore Rossi, director
general of the Italian central bank, told delegates that gold
plays a special role in central banks' official reserves.
"Not only does it have the vital characteristic of allowing
diversification, in particular when financial markets are highly
integrated, in addition it is unique among assets in that it is
not issued by any government or central bank, so its value
cannot be influenced by political decisions or by the solvency
of any institution," he said.
"These features, coupled with historic ... and psychological
reasons, stand in favour of gold's importance as a component of
central bank reserves," he said. "Gold underpins the
independence of central banks in their ability to (act) as the
ultimate bearer of domestic financial stability."
Italy holds 2,451.8 tonnes of gold in its reserves. A slim
majority of Italians polled by the World Gold Council in March
believed their government should use the country's gold holdings
to offset high public borrowing costs, although they did not
believe they should sell them.
Italy used gold to collateralise bonds in 1974, when it
received a $2 billion bailout from Germany's Bundesbank and put
up 500 tonnes of metal as a collateral.
EUROPEAN BANKS WON'T SELL
Other European central banks including the Bank of France
and the Bundesbank said at the conference that they will not
sell their gold reserves, as they can provide a level of
confidence, an element of diversification and can absorb some
volatility from the central bank's balance sheet.
"We have no plan to sell gold," Bank of France Alexandre
Gautier, director of market operations department, told
delegates in a presentation. "We are still active in the lending
market, but not retail loans. We can see some yields that are
attractive, but we realise that we can't lend gold without
Number two holder Germany also said at the meeting that it
will keep its 3,390 tonnes of gold.
PRICE ACTION IMPACTS CENBANKS DECISION
Gold price volatility this year has impacted the buying
decisions of emerging countries' central banks like Argentina,
Juan Ignacio Basco, deputy general manager at the Central Bank
of Argentina, said.
Bullion fell by $200 an ounce in two days in its sharpest
slide in 30 years in April before hitting a three-year low in
June and then regaining 13 percent from that level.
"It's very difficult to decide when to enter the market as
we don't follow trends ... (but) the recent volatility in prices
has changed the way we have look at gold," Basco said.
"That's why we have started with the product options because
volatility in the market is not good for us."
Argentina slowly re-started to rebuild its gold reserves in
2000s after selling them at the bottom of the market in December
1997 to buy U.S. Treasuries. It currently holds 61.7 tonnes of
the metal, representing seven percent of its assets.
"We are accumulating slowly ... and we have to move slowly,"
Basco said. "We must remember that we are like elephants."