Panic leads to dollar dump, investors seek refuge in gold
| New York
It has been a bad day 鈥� part of a bad year 鈥� for the US dollar.
The greenback got pummeled compared to a basket of currencies. At the same time, the price of gold moved to a noninflation adjusted all-time high of $1,039.70 as traders sought refuge from some of the global financial turmoil.
Behind the falling dollar and rising price of gold was a story 鈥� later denied 鈥� that some oil producing nations wanted to get paid with a variety of different currencies, not just the US dollar. But the real knockout punch for the greenback came after the Australian Reserve Bank, the nation鈥檚 central bank, raised interest rates.
鈥淚t鈥檚 another sign other economies are improving faster than the US,鈥� say Phil Flynn, director of research at Alaron Trading in Chicago. 鈥淚f that鈥檚 the case the dollar is going to be under pressure.鈥�
A falling dollar makes imports in the US more expensive but it also makes US exports more competitive. US Treasury Secretary Tim Geithner has recently said the policy of the US government is for a strong dollar.
So far this year, the US dollar is down more than 15 percent compared with six other currencies. 鈥淚t fell apart in March when the Federal Reserve starting printing more money,鈥� says Mr. Flynn. 鈥淚t鈥檚 been trending down and everytime it looks like it鈥檚 hit bottom, this kind of news slaps it lower.鈥�
The latest news was newspaper that Saudi Arabia, China, Japan, Russia and Brazil had held meetings to discuss a nine-year plan to phase out the US dollar in pricing oil and replacing it with a basket of currencies and gold.
later than the Saudi central bank governor, meeting in Istanbul at an IMF conference, denied meeting with the Chinese or any plan to replace the dollar.
鈥淚t spooked the market whether the story is true or not,鈥� says John Kilduff, vice president at MF Global, a commodities trading firm in New York. 鈥淭he denial was so homogenous it gave everyone pause.鈥�
Mr. Kilduff says the dollar and gold markets are also becoming very nervous over the US budget deficit.
鈥淭he massive amount of government spending and currency printing is leading investors to seek out shelter for what could be a wave of inflation in the future,鈥� he says.
When the US Federal Reserve met two weeks ago, the central bankers were not particularly concerned about inflation because the economic recovery has been weak.
In Australia Tuesday, from 3 percent to 3.25 percent. Some analysts thought it was the start of a series of rate hikes Down Under.
鈥淭hey are in a position to rein-in monetary policy,鈥� says Kilduff.
On Thursday, the European Central Bank meets. If the ECB decides to raise interest rates, this will put more pressure on the US dollar.
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