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Gold surges as dollar drops Original Source Link: (May no longer be active)
http://www.bloomberg.com/apps/news?pid=10000081&sid=aUybtVZ0t.VY&refer=australiahttp://www.bloomberg.com/apps/news?pid=10000081&sid=aUybtVZ0t.VY&refer=australia
Gold Surges as Dollar Drops on Bank of Korea's Reserves Plan
Feb. 22 (Bloomberg) -- Gold prices in New York rose more than $7 an ounce to the highest this year as South Korea's central bank plans to diversify its reserves, sending the dollar lower and boosting the metal's appeal as an alternative to U.S. assets.
Gold futures for April delivery rose $7.40, or 1.7 percent, to $435.80 an ounce on the Comex division of the New York Mercantile Exchange. The percentage gain was the biggest in six months.
The precious metal reached a 16-year high of $458.70 an ounce on Dec. 2 as the dollar dropped. The U.S. currency fell the most in more than four months against the yen and declined versus the euro and at least 30 other currencies today after the Bank of Korea said it may invest in higher-yielding investments than U.S. Treasuries, including Australian and Canadian dollar assets.
``Gold is being boosted by the dollar'' said Tom Boustead, an analyst at Refco LLC in New York. The South Korean plan is ``obviously negative for the dollar, and gold has been moving inversely to the dollar,'' he said.
The Bank of Korea controls the world's fourth-largest foreign currency reserves at $200 billion, behind Japan, China and Taiwan, according to data compiled by Bloomberg.
The announcement from South Korea will ``give cover to other central banks that wish to follow,'' said Dennis Gartman, an economist and editor of the Suffolk, Virginia-based Gartman Letter, a financial newsletter. ``It adds confusion and disconcertion for the dollar, and that breeds support for gold.''
The U.S. currency probably will drop over the next few weeks, and gold may reach highs set in December, he said.
The dollar fell1.3 percent to 104.22 yen from 105.54 late yesterday. The U.S. currency dropped to as low as $1.3245 per euro from $1.3068.
Current Account
The dollar has dropped in the last three years against the euro and the yen, in part on concern demand for U.S. assets will fail to match a widening current-account deficit. The gap was a record $164.7 billion in the third quarter, meaning the U.S. must attract $1.8 billion a day to fund the shortfall and support the dollar's value, according to Bloomberg calculations.
The dollar also remained lower after a Conference Board report showed consumer confidence in the U.S. fell to 104 in February from a revised 105.1 in January, reflecting a decline in expectations for the next six months.
A futures contract is an obligation to sell or buy a commodity at a set price by a specific date.
Last Updated: February 22, 2005 14:33 EST
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