The dollar plunged on world foreign exchanges Tuesday, staging its biggest one-day slide in at least 14 years. In response, gold prices soared in hectic trading for the biggest daily gain in at least a decade.
"It seemed to be almost a one-way market," said Gary Dorsch, a foreign currency analyst at Oppenheimer Rouse Futures Inc. in Chicago.
Describing the surge in gold buying, trader Joseph Joyce at Donaldson Lufkin Jenrette Futures Inc. in White Plains, N.Y., referred to "the herd instinct. It just fed on itself."
Analysts attributed the change of fortunes for gold and the dollar to new inflationary expectations related to the closing of 70 Ohio savings and loan associations last week and to huge deficits in the federal budget and balance of trade.
Rising oil prices and worries about heightened fighting in the oil-rich Persian Gulf between Iran and Iraq also helped gold, a traditional haven in times of economic and political unrest.
The Federal Reserve Board said its measure of the dollar against the currencies of 10 other industrial countries plummeted 2.39% on Tuesday, putting it down 5.54% from the all-time high reached Feb. 25.
The one-day drop was the largest daily decline in records that go back to Jan. 1, 1971. It eclipsed the 2.01% drop of Aug. 12, 1981.
Gold, which stood at a 5 1/2-year low of $282 an ounce on Feb. 25, shot up more than $35 to finish at its highest level in nearly four months.