The Central Bank of Cyprus denied that it will sell 400 million euros ($525 million) worth of its gold reserves as part of the conditions to Europe's bailout of the island state.
Aliki Stylianou, a spokesperson at the central bank told CNBC on Thursday that there was "no such thing being discussed."
"The decision to sell the gold is a decision to be taken by the board of the Central Bank of Cyprus (CBC). No such thing has been discussed or is in the process of being discussed. There are so many rumors flying about and this is just one of them," she said.
Stylianou's comments contradict the contents of a draft document from the European Commission assessing the financing needs of Cyprus, published by the Financial Times on April 9.
"The "programme" scenario takes into account a number of policy measures to strengthen debt sustainability, in particular (i) proceeds generated by privatisation of state-owned assets; (ii) the proceeds from the sale of excess gold reserves owned by the Cypriot Republic; and (iii) an asset swap in order to repay in kind part of the loan that the Central Bank of Cyprus extended to the Republic prior to the euro accession."
The European Commission (EC) also added that the "programme scenario" was based on the commonly agreed macroeconomic forecast and the fiscal consolidation measures…agreed between the Cypriot authorities and the Troika on 2 April 2013, including, inter alia…[the] sale of excess gold reserves of 0.4 billion euros."
The news that Cyprus was going to sell a large part of its gold holdings pressured bullion prices on Wednesday. Gold settled 1.65 percent lower at $1,558 an ounce on Wednesday. A sale of the size suggested in the EC document would be the biggest bullion sale in Europe since 2009.
In a research note, Julian Jessop, head of commodities research at Capital Economics, dismissed the possible effect Cyprus could have on gold prices if it was to sell off the majority of its 13.9 tonnes of gold.
"This is only part of a draft proposal from the European Commission and may well come to nothing," Jessop said in a note on Thursday. "More importantly, any resulting sales would be trivial – perhaps less than 10 tonnes in a global market where demand has been running at an annual rate of around 4,800 tonnes."
"There would also be significant political and legal obstacles, which may yet prevent even Cyprus from selling its gold. For a start, gold reserves are typically owned by national central banks which are forbidden (by EU Treaty) from directly financing government borrowing. But the most important barrier is simply the weight of public opinion," he said.
"At most, gold might be used as collateral for some government debt (an idea being promoted by the World Gold Council). However, the chances of large outright sales are very slim," he added.
-By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt