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Dollar Falls as Gold Has Biggest Rally in 2 Months

May 14, 1985|Associated Press

NEW YORK — Fresh worries about the soundness of the U.S. financial system contributed to a broad decline of the dollar Monday and helped to fuel a rally that propelled the price of gold to its biggest daily gain in nearly two months.

Both currency and bullion analysts said the appointment by the state of Maryland of a conservator for Old Court Savings & Loan, a privately insured thrift institution, rekindled traders' memories of the crisis that led to the temporary closing of 70 Ohio savings institutions in March.

Republic National Bank in New York said gold bullion was bid at $324.75 an ounce as of 4 p.m. EDT, a gain of $8.75 from the late bid last Friday. It was the biggest daily gain for gold since the surge of March 19, during the depths of the Ohio savings and loan problems, when gold bullion gained more than $35 an ounce.

Meanwhile, the Federal Reserve Board said its measure of the dollar against the currencies of 10 major trading partners fell 1.05% from Friday.

"Renewed concern about the American banking system took the dollar lower," said Gary Dorsch, a foreign exchange analyst at Oppenheimer Rouse Futures in Chicago.

William Orsini, a currency analyst at the New York branch of Bank of Montreal, said "people were a little unnerved" after reports surfaced of a run by depositors last week at Old Court S&L "so close to what happened in Ohio."

With worries about the Maryland institution and concern that the economy has slowed its expansion, traders believe that the Federal Reserve will accommodate lower interest rates, something that will avoid further shocks in the banking system and keep the economy going, the analysts said. But lower interest rates in the United States would make returns less attractive on dollar-denominated investments.

Expectations of lower interest rates also were heightened late last week when the Republican-controlled Senate narrowly approved a plan to reduce federal budget deficits. That measure still awaits action by the House, which is controlled by the Democratic Party.

In Tokyo, as the trading day began, the dollar fell to 251.55 Japanese yen from 252.70 yen last Friday. Later in London, the dollar slipped to 251.42 yen, and by the end of the day in the United States, the dollar had dropped to 250.55 yen from 252.20 yen late Friday.

The British pound rose against the dollar in London, with sterling rising to $1.2512 from $1.2332 late Friday. Later in New York, the pound climbed further, to $1.2610 from $1.2390 late Friday.

Other late dollar rates in Europe, compared to late rates Friday, included: 3.0840 West German marks, down from 3.1115; 2.5935 Swiss francs, down from 2.6275; 9.4000 French francs, down from 9.5000; 3.4805 Dutch guilders, down from 3.5150; 1,973.50 Italian lire, down from 1,990.00, and 1.3745 Canadian dollars, down from 1.3785.

Dollar rates in New York as of 4 p.m. EDT, compared to late rates Friday, included: 3.0540 West German marks, down from 3.10475; 2.5750 Swiss francs, down from 2.6150; 9.32375 French francs, down from 9.4750, and 1.37465 Canadian dollars, down from 1.3780.

Gold edged up 40 cents in Hong Kong to close at a bid of $317.85 an ounce.

Later in Europe, gold spurted up $9.25 in London to a late bid of $324.75, and gold gained $8 in Zurich to $324.50 an ounce.

On the New York Commodity Exchange, gold bullion for current delivery rose $8.80 to $324.90 an ounce.

Gold bullion is a traditional haven for funds in times of economic and political unrest. Since gold pays holders no interest, it is more attractive when interest rates decline and alternative dollar-denominated investments decline.

David Nelson, a metals analyst at Dean Witter Reynolds, said the bullion rally reflected the market's feeling that the Federal Reserve is likely to accommodate lower interest rates for a while because of the Maryland savings institution's problem and the economy's sluggish growth.

He also said investors remain concerned about huge foreign debts of developing countries. He noted remarks Monday by Paul A. Volcker, the Fed chairman, who said that, while progress has been made in managing international debt troubles, problems remain.

Silver was quoted in London at a late bid of $6.505 an ounce, up from $6.352 on Friday. Later on New York's Comex, silver bullion for current delivery surged up 25.4 cents to $6.603 an ounce.

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