Gold, once again proving its volatility, plunged yesterday by $16 an ounce in London, the exact amount which it had advanced the day before, as some speculators picked up profits and switched to strong currencies.
The dollar, meanwhile, fluctuated in a narrow range, closing fractionally down in Frankfurt, at 1.7635 German marks from 1.7675 at Thursday's close.
It was clear, as government officials had indicated Thursday, that the "zone" at which the U.S. was intervening to support the dollar had been dropped from 1.80 marks to somewhere in the 1.75 to 1.76 area.
Intervention by the German central bank to keep the dollar over the 1.76 level was reported to be heavy -- but no firm figures of the amount were known. Intervention by the Swiss central bank was also said to be "heavy."
The Carter administration, meanwhile, displayed an air of outward calm, even confidence, about the events in the gold and foreign exchange markets. Treasury Secretary G. William Miller said that it isn't true that the position of the dollar is generally weak, forcing the U.S. to evolve a "dollar rescue" package on Nov. 1.
He blamed the press for stories that made the dollar seem weak, saying "it makes good copy." In fact, he noted in an appearance before the Dealer Bank Association, the dollar is 5 per cent higher on a trade weighted basis against all currencies taken together than it was on Nov. 1. "And it's higher today than it was last Oct. 31 in relation to the Deutschemark and the Swiss franc," Miller said.
Federal Reserve officials joined Treasury spokesmen in stressing that the current problem in world currencies is more a reflection of the D-Mark's strength than the dollar's weakness.
Because of rumors of a realignment of all currencies in the fixed rate European Monetary System -- a realignment that would cause substantial upward valuation of the D-mark, the Germany money has been against all other currencies.
"A D-mark revaluation technically would only be against other EMS currencies," one U.S. official said, "but the natural reaction in the market is to ask whether or not the mark won't go up against the dollar."
U.S. officials feel quite content to see the dollar dip to around 1.75 marks -- with the intention of strong support there.
"We have a pretty clear interest in seeing a stable relationship, and a perception of a stable relationship, and we don't want to see a cascading relationship," Federal Reserve officials said. "Any downward movement that is too sharp not only would add to our inflation problems, but add to a sense of uncertainty."
As for gold -- which one Zurich dealer said was "behaving like a yoyo" -- dealers reported that the drop yesterday was attributable to expected profit-taking, plus the rumors of D-mark revaluation which brought a speculative shift by Arab and other large investors into currencies.
They said this trend was strengthened by reports of a change in U.S. market intervention strategy. The Washington Post reported yesterday that officials were willing to see the dollar dip to about 1.75 marks before stepping in to support the price.
Gold closed in London at $369.50 an ounce, down from Thursday's record final price of $385.50. In Zurich it also closed at $369.50, down from $381.59.
The dollar fell in Zurich to 1.5725 Swiss francs from 1.58, in Paris, to 4.51 francs from 4.1675; in Brussels to 29.5750 Belgian francs from 29.765; in Amsterdam from 1.94 guilders from 1.9520; in Milan, to 805.80 lire from 806.05; and in Tokyo, to 221.40 yen from 222.35. In London, the pound edged up to $2.1635 from $2.1610.