Interest Rate Rise Boosts the Dollar; Gold Gains by $2.60
Falling U.S. bond prices and rising interest rates sent the dollar soaring Friday to its highest levels against major foreign currencies in nearly a month.</br></br>"The collapsing bond market," said Mory Ogata, senior vice president and treasurer of Union Bank, Los Angeles, "means that (U.S.) interest rates are back again as the main support of the dollar. People are buying the dollar on the basis of higher interest rates and expectations that interest rates will be still higher."</br></br>High U.S. interest rates usually help the dollar by making dollar-denominated investments look especially attractive. By contrast, they usually hurt gold by making purchases of the metal more expensive to finance. But on Friday, gold also advanced $2.60 an ounce in light trading. "The fact that precious metals held up so well in the face of higher interest rates," said Bernard Savaiko, a senior precious metals analyst of Paine, Webber, Jackson & Curtis Inc., "indicates that people still are worried about inflation, and there's an underlying support for inflation hedges." Gold is frequently held as a hedge against inflation.</br></br>Mr. Ogata said that rising interest rates should help spark "more capital flows into the U.S."</br></br>Nonetheless, he added, he doesn't see "a drastic move up" for the dollar. It should have a top range in the days ahead of about 2.65 West German marks and 226 Japanese yen, he said. In late New York trading Friday, the dollar settled at