The Central Bank of Cyprus has denied plans to sell 400 million euros ($ 525 million) of its gold reserves as part of its EU bailout deal.

While the mere idea of ​​a eurozone country liquidating its gold holdings has scared the market in recent days, analysts told CNBC it was not such a big worry.

Gold hit a week-low on Thursday amid concerns over Cyprus’s potential sell-off and as Wall Street banks turned more bearish on bullion.

European Commission documents published by the Financial Times showed that Cyprus would commit to selling the majority of the gold held by its central bank as part of an international bailout.

(Read more: El-Erian: Unfortunately, the Cypriot crisis is not over yet)

This has raised fears that other heavily indebted peripheral countries in the eurozone may be forced to do the same.

Cyprus only holds 13.9 tonnes of gold, worth around € 585 million, compared to 4,800 tonnes held worldwide. Under the EC’s draft plan, the country would sell 400 million euros ($ 525 million) of bullion or around 10 tonnes, a small amount by global standards, but still potentially the biggest sale of bullion. in Europe since 2009

Distressed eurozone members Italy and Portugal have much larger holdings of gold, and investors fear that if they follow suit, it will really disrupt the market.

“This would only become a major concern if countries with much larger holdings were forced to sell. However, among other troubled eurozone members, only Italy and Portugal hold significant amounts of gold per relative to their borrowing needs, ”said Julian Jessop, director of commodities research at Capital Economics.

(Read more: The mystery deepens: Has Cyprus extended capital controls?)

There would also be significant political and legal obstacles, which could still prevent even Cyprus from selling its gold, but the most important barrier is simply the weight of public opinion, Jessop said.

“At the most, gold could be used as collateral for some public debt (an idea promoted by the World Gold Council). However, the chances of major outright sales are very slim,” he added.

Olivia Ker of BlackRock, who covers the gold and mining sectors within the company’s natural resources team, said she was concerned about the possible contagion effects of Cyprus stocks on others. euro area countries.

But, she added, the EU treaty prohibits the sale of central bank gold reserves in order to finance deficits.

“Gold reserves are held by central banks and it is in fact prohibited under the EU treaty to directly finance government borrowing with central bank gold reserves, so this would be a big step. if a country like Cyprus sells its gold reserves, ”she said. .

There is another wrinkle, analysts say. If the eurozone crisis were so severe that governments were forced to sell their gold holdings, it could also stimulate investor demand for a safe haven asset like gold.

(Read more: Why gold will continue to underperform)

“If the crisis elsewhere in the eurozone escalates to the point that other larger countries are desperate enough to consider selling their own gold, the demand for safe-haven securities would surely be so great that there would be plenty of buyers. willing – even at higher prices, “said Jessop

James Sutton, client portfolio manager for JP Morgan’s natural resources fund, said more central banks are buying gold rather than selling, so there would be no shortage of potential buyers if Cyprus was selling.

“If Cyprus sold it wouldn’t move the needle. Compared to Portugal and Italy, Cyprus is in an incredibly weak position and the ECB would never let them get to this point,” he said.