Inflation Scorecard: A Volatile Week (GLD, GDX, GDXJ)

Gold reversed course Thursday, along with a broad spectrum of commodities, paring the gains scored earlier against the reserve currencies. Still, bullion managed to eke out a 0.7 percent advance vs. the yen and moved ahead 0.6 percent against sterling. The Swiss franc gave up 0.2 percent to gold, while the euro gained 0.1 percent.

U.S. dollar-denominated assets traded in a slightly inflationary direction this week.

  • On Thursday morning, London gold was fixed at $1,424, off 0.4 percent for the week; interim fixes averaged $1,429; spot metal settled at $1,412 on COMEX, down 0.3 percent; average daily volume jumped 17.3 percent to 202,626 contracts; open interest picked up 2,424 contracts to finish at 521,137.


  • COMEX gold inventories fell by 48,737 ounces (1.5 tonnes) to 11.098 million; stocks now cover 21.3 percent of open interest; immediate demand for COMEX bullion amounts to no more than 3,700 ounces, while 2.387 million ounces are in a deliverable position.


  • Bullion assets of the SPDR Gold Trust (NYSE:GLD) increased by 6.7 tonnes (214,574 ounces) to 1,217.3 tonnes.


  • Gold’s projected volatility, tracked by the average of the CBOE Gold Volatility Index (CBOE: GVZ), moved up another 0.6 points to 17.3 percent.


  • One-year gold lease rates backpedaled 2 basis points (0.02 percent) to average 0.30 percent.


  • Junior miners again won the volatility derby; a 6.7 percent decline in the share price of the Market Vectors Junior Gold Miners ETF (NYSE:GDXJ) was met with a 5.1 percent loss in the larger-cap producers comprising the Market Vectors Gold Miners ETF (NYSE:GDX); the S&P 500 Composite gave up 2.7 percent.


  • The S&P benchmark’s correlation to GDX shot up 12 points to 27 percent; against bullion, the index’s correlation slipped 6 points to -31 percent.


  • After considerable volatility, WTI spot crude oil ended up just 0.8 percent higher at $102.70; the gold/oil multiple dropped from 14.3x to 13.7x.


  • Implied finance rates embedded in COMEX gold futures held relatively steady this week; the discount to one-year Treasurys ticked up 1 basis point, reflecting expectations of steady to slightly higher rates; the one-year COMEX contango eased by 30 cents, or 3.1 percent, to $9.50 an ounce.


  • The one-year TED spread picked up a basis point to average 0.53 percent.


  • The Treasury yield curve steepened 10 ticks to 451 basis points as long bond yields rose to 4.60 percent.


  • The euro fell 0.3 percent against the U.S. dollar, averaging a $1.3929 cross rate in interbank trading.


  • Daily readings of the Monetary Inflation Index’s one-year rate averaged 1.6 percent, up from 1.5 percent last week; at today’s rate, the real return on 3-month Treasury bills is -69 basis points.


Real-time Monetary Inflation Rate

Real-time Monetary Inflation Rate

Note: Explanations of the Scorecard’s indicators can be found in the Hard Asset Investors’ primer articles, “Deciphering The Inflation Scorecard: Why Gold?” and “Deciphering The Inflation Scorecard: Part 2.”

Written by Brad Zigler From Hard Assets Investor (HAI) is a research-oriented Web site devoted to sharing ideas about hard assets investing. The site has been developed as an educational resource for both individual and institutional investors interested in learning more about commodity equities, commodity futures and gold (the three major components of the hard assets marketplace). The site will focus on hard assets investing without endorsing or recommending any particular investment product.

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