Inflation Scorecard: Gold’s Mixed Performance (GLD, GDX, GDXJ)

The world’s reserve currencies turned in a mixed performance against gold for the week ending Thursday. The Swiss franc was most resilient, rallying 2.7 percent against bullion, while the euro inched up 0.7 percent. Gold and the yen squared off to a standstill. Sterling lost 0.4 percent to the metal.

US dollar-denominated action centered on:

  • London morning gold fixes finishing 0.1 percent higher at $1,384 after averaging $1,389; COMEX spot settlements averaged $1,388, but wrapped up the week 1.6 percent lower at $1,370; average daily volume for COMEX gold falling 24.8 percent to 147,176 contracts; open interest declining 5,288 contracts to 593,057; COMEX gold inventories building by 35,921 ounces (1.1 tonnes) to 11.61 million, covering 19.6 percent of open interest; potential demand for gold deliveries amounting to 61,500 ounces, with 3.1 million ounces in a deliverable position.
  • One-year London gold lease rates easing an average 2 basis points (0.02 percent) to 7 bps.
  • Bullion assets of the SPDR Gold Shares Trust (NYSE:GLD) falling 10 tonnes (322,183 ounces) to 1,283.8.
  • The cost of protective GLD puts falling 26.4 percent while projected volatility, measured by the CBOE Gold Volatility Index (CBOE:GVZ), eased 2.7 points to 17.3 percent.
  • The appeal of gold mining stocks waning over the week; the Market Vectors Junior Gold Miners ETF (NYSE:GDXJ) slipped 1.6 percent while the larger-cap Market Vectors Gold Miners ETF (NYSE:GDX) gave up 2.1 percent; the GDXJ/GDX price ratio fell to 65.6 percent from 68.1 percent, indicating a diminished investor appetite for risk.
  • The 0.2 percent uptick in the S&P 500 Composite its correlation to bullion 15 points to 19 percent; the blue chip benchmark’s correlation to gold producer stocks remained unchanged at 65 percent.
  • WTI crude oil creeping 0.8 percent lower to $87.70, basis the January NYMEX contract; the gold/oil multiple ticked up to 15.9x from15.8x.
  • One-year TED spreads—a measure of counterparty risk—edging 1 bp lower to 0.49 percent, reflecting an uptick in Treasury yields.
  • Higher interest rates signaled by the COMEX gold futures curve as embedded finance costs’ discount to one-year Treasurys was whittled to 11 bps; the one-year gold contango increased by 50 cents an ounce, or 4.1 percent, to $12.60.
  • Average yields on the long bond reaching 9 bps higher to 4.47 percent, steepening the yield curve to 435 bps.
  • The US dollar weakening against the euro; the common currency finished the week 0.7 percent higher at $1.3327 after averaging a $1.3287 cross rate.
  • Daily indications of the one-year monetary disinflation rate easing from an average -2.7 percent to -1.7 percent; at today’s rate, the real return on three-month Treasury bills is 88 bps.

Gold Market Forecasts Higher Rates

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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