Dollar Stages Broad Retreat; Gold Up $8
The dollar staged a broad retreat Tuesday, undercut by falling interest rates in the United States and renewed concern abroad about the stability of the American banking system.
As the dollar resumed last week’s sell-off following a two-day pause, gold prices rose. Republic National Bank in New York said gold bullion was bid at $324 an ounce, up $8 from the late bid Monday.
Both currency and bullion analysts said Tuesday’s trading was evidence that investors have been re-examining their strategies.
“People two weeks ago were writing obituaries to gold . . . but when the cadaver got up and started dancing, there was an important reassessment of the metal,” said Jeffrey Nichols, president of American Precious Metal Advisers Inc., an investment firm in White Plains, N.Y.
Meanwhile, some currency traders who had been bullish about the dollar are having second thoughts, said Albert Soria, a vice president at the New York branch of Swiss Bank Corp.
Until recently, currency traders expected a combination of robust economic growth in the United States and huge federal deficits would keep interest rates high while inflation remained low--something that would keep returns high on dollar-denominated investments.
But that optimism dimmed in recent weeks as signs emerged of a slowing of the rate of economic growth in the United States and as 70 Ohio savings and loan associations were briefly closed because of fears of a run by depositors.
While Ohio’s problems appear to have been resolved, fears of new bank problems in the United States have surfaced, prompting fresh sales of dollars by European traders, Soria said.
European currency dealers said those worries were triggered by reports that some Texas banks’ problem-energy loans may cut into profits. On Monday, the Canadian government had to arrange financial support for a bank in Alberta that had problem- energy loans in the United States.
Dollars Less Attractive
Falling interest rates also made dollars less attractive to hold, and selling picked up as the dollar dropped below exchange rates viewed as important resistance levels--such as 3.20 West German marks, Soria said.
Despite the dollar’s 6.2% fall from the record heights it reached in February, many analysts are still predicting the U.S. currency will resume climbing later this year.
The dollar began the trading day by rising to 256.97 Japanese yen in Tokyo from 256.35 yen Monday. But later in London, the dollar fell to 255.90 yen and by the end of the trading day in the United States, the dollar had slipped to 255.375 yen from 256.835 late Monday.
The British pound rose against the dollar, with sterling climbing to $1.1807 in London from $1.1712 late Monday. Later in New York, the pound rose to $1.1875 from $1.17325 late Monday.
Other late dollar rates in Europe, compared to late rates Monday, included: 3.2090 West German marks, down from 3.2350; 2.7215 Swiss francs, down from 2.7450; 9.8075 French francs, down from 9.8900; 3.6300 Dutch guilders, down from 3.6565; 2,042.50 Italian lire, down from 2,056.00, and 1.3760 Canadian dollars, down from 1.3810.
Dollar rates in New York, compared to late rates Monday, included: 3.1965 West German marks, down from 3.2340; 2.7065 Swiss francs, down from 2.74075; 9.7625 French francs, down from 9.89625, and 1.3725 Canadian dollars, down from 1.3785.
Strong Buying of Gold
Gold prices rose as a result of strong buying on U.S. futures markets, bullion dealers said.
Gold inched up 71 cents in Hong Kong to close at a bid of $315.91 an ounce.
In Europe, gold jumped $8.40 to a late bid of $324 an ounce in London, and gold bullion gained $6.75 in Zurich to $322.25 an ounce.
On the New York Commodity Exchange, gold bullion for current delivery closed at $324.20 an ounce, up $8.10.
