CURRENCY : Falling Dollar Sparks Gold Rush : But Rally in Bullion Fades After Inflation Fears Calm

The dollar’s persistent weakness in foreign exchange pushed gold prices above $500 an ounce Monday, but the rally faded in domestic trading as oil prices fell and inflation fears were dissipated.

At Republic National Bank of New York, gold bullion was bid at $495.50 as of 4 p.m. EST, down $1.75 from Friday’s late price.

The dollar continued to slip against most major world currencies, but the losses were slight in quiet, cautious trading.

The rush to gold, which pushed prices as high as $502 in morning trading, was viewed as a direct response to the dollar’s continuing slide. Some analysts said the metal, traditionally a safe haven for investors, had not appreciated as fast as the dollar had fallen, leaving room for a strong upward move.

But buying subsided late in the morning as some players sold gold to take profits.

Gold closed at a bid of $500.50 in Zurich, up from $493.50 on Friday. In London, the metal broke the $500 level in morning trading but closed the day at $499.

They were the highest prices recorded since early April, 1981, when gold fetched $508.50 in London and $511.50 in Zurich.

Jeffrey Nichols, an analyst with American Precious Metals Advisors, said North American and Australian mining companies sold into the rally, perhaps triggering the turnaround.

Recession Forecast

Nichols said a crack in oil prices, because of rifts in the 13-nation Organization of Petroleum Exporting Countries, added to the downward pressure on gold.

The markets also reacted to increased talk of recession, Nichols said. A survey of economists for top U.S. corporations released Monday found half forecasting a recession within a year as a result of the collapse of the stock market in October.

The combination of recession forecasts and lower oil prices dampened much of the inflation anxiety that had been generated by the dollar’s slide.

“All these things weighed on gold,” Nichols observed, although he said the metal would probably test the $500 mark again as long as the dollar remained weak.

Analysts said the metal had not reached such lofty levels since the early 1980s.

“Gold has performed like a currency . . . moving up with the (West German) mark and the (Japanese) yen,” Nichols said.

The U.S. currency, meanwhile, limped through another mostly lackluster session. Traders said most players had finished their trading for the year or were in the process of closing their books.

Hits Low Against Yen

Although the currency continued to slip to new lows against the mark and the yen, most of the damage was done last week when the government announced a record U.S. trading shortfall for October.

In Tokyo, where the trading day begins, the dollar fell 0.75 yen to a closing 128.00, its lowest since dollar-yen exchange rates were set in the late 1940s. Later, in London, it closed even lower, at 127.58, and in New York, it drifted to 127.995 from 128.30 late Friday.

One British pound cost $1.8390 in London, more expensive than $1.8305 late Friday. In New York, the pound brought $1.8385, up from $1.8380.

Other late dollar rates in New York, compared to late Friday, included: 1.6305 West German marks, down from 1.6307; 1.3270 Swiss francs, down from 1.3297; 5.5265 French francs, down from 5.5400; 1,201.50 Italian lire, down from 1,203.00, and 1.3065 Canadian dollars, down from 1.3069.