Price of Gold Plunges on Belief in Quick War

NEW YORK — The price of gold virtually melted today, free-falling more than $30 an ounce in reaction to a plunge in oil prices on the belief that the U.S.-led attack on Iraq will result in a quick war and a possible world oil glut.

In active trading on the New York Commodity Exchange, gold for delivery in February plummeted $30.50 to $397.00 an ounce in early trading.

Gold had risen $4.30 Wednesday and gained another $5 overseas after the initial report of the aerial assault.

“It was a unique situation for gold,” said George Nickas of Geldermann Inc. “For the first time ever, we had a war in the prime-time hours.”

Analysts said a collapse in oil prices triggered a rush of liquidation by gold speculators who were betting that a Persian Gulf war would send the price of oil skyrocketing and spark hyper-inflation.

“Whatever war premium was in the price of gold evaporated when it became evident that the United States was in control of the air over Iraq,” said Jeffrey Nichols of American Precious Metals Advisors, a consulting company in Boca Raton, Fla.

News of the attack on Baghdad late Wednesday initially sent gold soaring $5 in Hong Kong to $407.70 an ounce. But the rally was short-lived and the market changed direction, dropping to $391.50.

Analysts said the selling may have been magnified in the near-panic trading conditions.

They said that during the 5 1/2-month standoff, gold had struggled to hold rallies above $400 an ounce.

Without the Iraq conflict, gold would probably have traded in the $360 to $380 range in the months since the invasion, analysts said.