USA

Dollar makes 15-month highs, gold suffers again

Amid another slaughterhouse day on the markets, stocks and commodities - led by precious metals - plunge.

JOHANNESBURG - 

Mining Finance

Defying its reputation as a safe haven asset, gold bullion plunged by up to 5% at points on Thursday, trading between intraday highs around USD 876.15 and lows around USD 831.55 an ounce, as the dollar index, the trade weighted value of the greenback, moved to 15-month highs.

The moves in the dollar and gold captured the increasingly dark mood of another dreadful day in markets, with the dollar increasingly assuming the role of safe haven asset. Worries over global credit markets intensified all over again. Bleak economic reports from the US, where Congress was due to vote on a USD 700bn package to bail out toxic debt in the world's biggest economy, saw investors taking the least line of resistance in stocks generally, and commodities, as fears grew over the extent of the rate of slow down in the global economy.

Bar Johnson & Johnson and Procter & Gamble, two ultra defensive stocks, the majority of the 30 components in the Dow Jones Industrial Index were falling. The Dow is now 25% off its highs, seen a year ago; the S+P 500 has fallen by 28%. The Morgan Stanley Capital International index for all world equities has now fallen 30% from its highs; the comparable index for all equities in emerging markets is down by 25%.

There are no broad sectors that have been spared as credit has increasingly dried up, effectively freezing out not only credit markets, but equity markets as well. The MSCI equities index for banks across the world has now fallen 40%; energy stocks are off by an average of 33%; finance stocks by 40%, and materials stocks, which cover the broader resources arena, by 41%.

Currencies continued to tumble as the dollar moved higher. The rising value of the dollar has defied the potential issue of hundreds of billions of dollars of fresh US Treasury bills needed to finance the US's toxic debt package. The dollar has moved strongly against the majority of currencies in the world since 15 July, after showing early signs of moving out of a six-year bear market. After falling 41% over a six year period, the dollar has rallied by a significant 11.8% since the middle of July this year.

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