In a burst of enthusiasm not matched in the stock markets, the U.S. dollar yesterday soared to its highest levels in a year and a half, while gold plummeted under the $500 mark -- all in response to President Carter's anti-inflation program.
Gold, silver, and other commodity prices kept pace in the New York market with the movements abroad. In trading both here and abroad, gold reached the lowest levels since last December, just prior to the rush that drove prices to nearly $875 an ounce in January.
Gold closed in London at $479 an ounce, off $51 from Friday, a drop of more than $100 in a week's time. In New York, the final price was $469, down $57 an ounce.
Where European financial experts praised the combined Federal Reserve-White House package as one that would effectively combat inflation, the thrust of financial market reaction was that the program is weak, and does not go far enough. This view was underscored by a statement from Sen. William Proxmire (D-Wisc.), chairman of the Senate Banking Committee that the program is "weaker than I had hoped for . . . and it fails to take definitive action."
But Europeans were impressed by the rising U.S. prime rate, which hit 18 1/2 per cent last week, and by the new package of direct controls imposed by the Fed on the growth of credit.
"Investors are flooding out of European currencies and gold into the dollar," said a dealer in Zurich.
In Frankfurt, the dollar hit 1.8750 marks, up from 1.8530 on Friday, or to the highest level since June of last year. The dollar closed at 1.8745 marks. In Zurich, the dollar at one point was as high as 1.78925 Swiss francs and closed at 1.78675, up from 1.7620. That represented the highest dollar rate in Zurich since July 1978. Similar gains were posted for the dollar in Paris, Amsterdam and Milan.
In London, the pound was down from $2.2155 on Friday to $2.1879. And silver, which had hit a price of $49 an ounce in London dropped to an even $20 an ounce from $24.25 on Friday.
In Tokyo, despite central bank intervention to keep the dollar from moving too hign, the American currency closed at 249.40 yen, up from 248.80 on Friday.
Spokesmen for the Carter Administration suggest that the strength of the dollar abroad can be attributed not only to rising rates here, but to the relative success the U.S. is having in curbing its current account (trade and services) deficit despite the impact of ballooning oil import costs.
Meanwhile, Federal Reserve Governor Henry C. Wallich, filling in for Fed Chairman Paul Volcker, told the Senate Foreign Relations Committee it is urgent to enlarge the resources of the International Monetary Fund. He urged Congress to approve without delay the $5.4 billion U.S. share in the increasing IMF quotas.
The IMF plays a key role in helping to finance the balance of payments deficits among its 135 member nations, a function that has become increasingly important as these deficits grow, and oil cartel surpluses increase.
Wallich noted that beefing up the total lending power of the IMF to about $75 billion could provide an important safety valve in meeting "the serious problems that the international economy is facing."
He suggested specifically that the United States "may want to draw on the Fund in the future," as it did as part of the November 1, 1978, "dollar-support" package.
The new U.S. quota, if approved by Congress, would rise to $16.3 billion, representing 21.5 per cent of the IMF's total.