Gold bars 2012 2
Gold bars on display. Reuters

A rumor that Cyprus would go so far as to sell off its gold in order to raise funds underscores how fragile the euro zone is because of its weakest members.

Portugal, Ireland, Italy, Greece and Spain hold more than 3,230 metric tons (3,561 tons) of gold between them, worth nearly $164 billion at today's prices, yet most euro zone countries protect their gold reserves as an important way to store value and avoid currency devaluations. Struggling countries, however, could now entertain the option.

A Central Bank of Cyprus spokesperson said Wednesday that rumors stating that it would sell 75 percent (approximately 10 tons or $523 million) of its gold were inacruately reported by Reuters. Aliki Stylianou told the Cyprus News Agency, or CNA, that no such deal was ever "raised, discussed or debated" with the bank's board of directors.

Yet Reuters based its story on a draft assessment of Cypriot financing needs it obtained from the European Commission. Reuters reported that the commission document evaluated Cyprus' options and determined that selling its gold would help Cyprus raise around 3 percent of what it must contribute to the bailout pool. CBC, however, says the option is not on the table.

A gold sell-off was "never discussed nor are there current or future plans to do so on the board's agenda," Stylianou said. Still, gold took a huge hit on Wednesday as a result of the rumor, dropping 1.65 percent from $1,581 to $1,555 per ounce, its lowest point since Nov. 2.

The Cyprus bailout plan has been adjusted up from the initial estimate of 17 billion euros to 23 billion euros, according to Capital Economics Ltd. The group released a note stating that ramifications of the Cyprus crisis will continue for some time.

"The dramatic increase in the size of the proposed rescue package for Cyprus both underlines the depth of the problems facing the country and poses further questions over the likely impact of future euro zone bailouts on both depositors and bondholders," Chief European Economist Jonathan Loynes wrote.

Loynes' note does, however, predict that the Cypriot economy will return to solid real GDP growth of almost 2 percent annually by 2016 and expects the budget deficit to return to balance.

Additional analysis from Capital Economics on Wednesday concluded that Greece will require another debt restructuring in order to return public debt to a sustainable level. The group also stated that Ukraine's international fundraising efforts will only provide it with temporary deficit relief.