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U.S. dollar's queasy slide pushes up gold price

Investors clamored to buy pretty much anything on Tuesday — as long as it wasn't the U.S. dollar.

A seven-month slide in the value of the dollar gained force as investors migrated to other markets and fretted over a report that crude oil could one day be priced in other currencies, hobbling the dollar's role as a vehicle for global trade.

The dollar's decline propelled gold prices to record highs near $1,040 an ounce and touched off a buying spree for copper, silver, platinum and crude oil — commodities that typically hold their value if the dollar does not.

"Right now, it doesn't give any sign of pulling back significantly," said James Steel, a commodities analyst at HSBC. "There's still a worry about the dollar. There's a latent worry about inflation."

The dollar slipped further against major currencies, continuing a decline that has sent it tumbling 15 percent since early March. The dollar fell to $1.47 against the euro, and the Japanese yen strengthened to 88.83 for every dollar.

Investors who sought the relative safety of the American currency during the financial crisis are now pursuing higher returns in stocks, commodities and foreign currencies, out of concern that demand for American debt is waning and that the dollar could someday lose its status as the world's reserve currency.

Underlying the dollar's weakness is the growing perception that many policymakers around the world — and in Washington — quietly welcome a slow but sustained depreciation of the dollar, especially against the Chinese renminbi and other Asian currencies.

A weaker dollar would make imported goods more expensive in the United States and American exports more competitive, but it could make overseas investors wary of buying the Treasury bonds that the United States needs to sell to finance its budget deficit.

On Tuesday, the Reserve Bank of Australia surprised investors by raising interest rates, making Australia the first big economy to lift rates after the global financial crisis.

Countries around the world — including the United States — trimmed interest rates to record lows as the credit crisis metastasized last year, in an emergency effort to stimulate the markets and keep lending from drying up. Although credit is flowing better now, the Federal Reserve has indicated that interest rates will hover near zero for some time.

"The move was taken as a sign that the global economy is firmly on the road to recovery," said Vassili Serebriakov, a currency strategist at Wells Fargo. "That's lifted risk appetites and assets across the world."

Adding to the turmoil, a report on Tuesday in the Independent, a British newspaper, suggested that China, France, Japan and Russia were in secret talks with Persian Gulf countries to abandon the dollar for international trade in oil and replace it with a basket of currencies plus gold.

The article named no sources and was quickly denied by Muhammad al-Jasser, the governor of the Saudi central bank, and Dmitry Pankin, Russia's deputy finance minister. French officials declined to comment. In China, the government is closed for a weeklong holiday, but well-connected bankers were skeptical.

But the report caught the attention of investors because several economists have been predicting that at some point, the world's oil exporters would start moving toward other currencies to limit exposure to the dollar.

Any shift away from the dollar for oil trading, or for commodities more broadly, would seriously undermine global demand for dollars and strengthen the alternatives to it. This would make it harder for Washington to borrow overseas to finance its budget and trade deficits, and could fuel inflation in the United States.

U.S. dollar's queasy slide pushes up gold price 10/06/09 [Last modified: Tuesday, October 6, 2009 8:09pm]
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