In recognition of the surprising new strength of the dollar in foreign exchange markets, the U.S. Treasury yesterday said that, until further notice, it will cut in half its nonthly auction of gold to 750,000 ounces begainning in May.
Last Nov. 1, as part of its $30 billion "rescue program" to support the dollar, the Treasury announced it would double the monthly sale of gold to 1.5 million ounces beginning with the December auction. The sale had just been increased to the 750,000-ounce level for November from the earlier monthly rate of 300,000 ounces.
Officials said yesterday that before Nov. 1, a lack of confidence in the dollar was related directly in the markets to a rise in the price of gold. To break this "inverse correlation," which was destabilizing the dollar, officials decided to boost the sale of gold.
The willingness to sell large amounts of gold from U.S. reserves, like other elements of the $30 billion support package, also demonstrated a U.S. commitment to liquidate real assets-not merely to borrow money-to defend the position of the dollar.
The result, officials said yesterday, is that the "inverse" relationship between gold and dollar prices has been broken. According to the formal Treasury announcement, the sale of 1.5 million ounces of gold "does not appear to be needed under current circumstance."
Coincidentally, at a monetary conference in New York, international economist Edward M. Bernstein said that from the end of October through last week, the dramatic rise of the dollar had reached 8.9 percent against the German mark, 20.6 percent against the Japanese yen, and 15.5 percent against the Swiss franc.
Bernstein said the dollar recovery would have been even greater against European currencies were it not for intervention designed to moderate the increase.
He pointed out to the conference-jointly sponsored by Dillon, Read & Co. and the Columbia University School of International Affairs-that rising interst rates in the U.S. have attracted investment funds from abroad and may push the dollar higher.
But in the long run, Bernstein said that "the value of the dollar in the exchange market will depend on the success of the United States in slowing inflation and in improving the balance payments."
The dollar edged off slightly in some market yesterday, but not because of the gold announcement. The decline was a reaction to unconfirmed rumors that the Federal Reserve Open Market Committee had not boosted interest rates, as urged by some administration officials, at its meeting here on Tuesday.
Yesterday's late quotations in Japan and Europe included: Tokyo, 217.575 yen, down from 217,925 Tuesday; Frankfurt, 1,8950 German Marks, down from 1.9017; Zurich, 1.7171 Swiss francs, down from 1.7238; Paris, 4.3582 French francs, down from 4.3725; Amsterdam, 2.0470 Dutch guilders, down from 2,0585; and Milan, 843.25, a rise of $5,375.
U.S. officials said that they were not surprised by the gold price increase because "the amount we were selling was considerable in relation to the total supply." But officials added that only time will tell whether yesterday's increase will stick.
The results of the April sale of 1.5 million ounces, the Treasury said, showed a gross $346.1 million, with priced down sharply at an average of $230.16 from $241.30 the previous month.