Inflation Scorecard: In A Word, ‘More’ (GLD, GDX, GDXJ)

Gold continued its rise across the reserve currency spectrum this week. The yen yielded 1.1 percent to bullion with the Swiss franc close behind with its 1.0 percent loss. Sterling was off 0.4 percent as the euro fell 0.3 percent.

U.S. dollar-denominated asset values also reflected an inflationary bias. For the week ending Thursday:

  • Morning gold fixes in London averaged $1,418 and finished 1.1 percent higher at $1,430; COMEX spot was virtually unchanged at $1,416 after averaging $1,420; average daily volume inched up 3.3 percent to 174,439 contracts; open interest was built up by 14,309 contracts to 524,584.
  • COMEX gold inventories increased by 67,342 ounces (2.1 tonnes) to 11.147 million; stocks now cover 21.5 percent of open interest; immediate demand for COMEX bullion amounts to no more than 9,800 ounces, while 2.483 million ounces are in a deliverable position.
  • Bullion assets of the SPDR Gold Trust (NYSE:GLD) slipped 0.9 tonnes (30,447 ounces) to 1,210.6 tonnes.
  • The average cost of protective gold puts fell 11 percent though projected volatility, measured by the CBOE Gold Volatility Index (CBOE: GVZ), advanced 0.9 points to 17.6 percent.
  • One-year gold lease rates continued their rise with an average 3 basis point (0.03 percent) increase from 0.29 percent to 0.32 percent.
  • Volatility in the junior miners, reflected in the share price of the Market Vectors Junior Gold Miners ETF (NYSE:GDXJ), again took center stage, with a 6.4 percent increase; producers, proxied by the Market Vectors Gold Miners ETF (NYSE:GDX), were also higher, but by only 3.7 percent; the S&P 500 Composite climbed 1.9 percent.
  • The blue chip index’s correlation to GDX fell another 4 points to 14 percent; the coefficient vs. bullion slid 3 points to -26 percent.
  • WTI spot crude oil’s price climbed 4.8 percent to $101.91, the average daily gold/oil multiple plummeted from 15.2x to 14.2x.
  • Internal COMEX gold finance rates narrowed their discount to one-year Treasurys by 13 basis points, indicating expectations of an uptick in yields; the one-year COMEX contango rose by $1.60, or 19.6 percent, to $9.80 an ounce.
  • One-year TED spreads continued their steady state at 52 basis points.
  • The Treasury yield curve continued to flatten; this week the curve was compressed another 11 ticks to 441 basis points, as long bond rates fell from 4.62 percent to 4.54 percent.
  • The euro rose 0.8 percent against the greenback to $1.3887 after averaging $1.3817 in interbank trading.
  • Daily readings of the Monetary Inflation Index’s one-year rate averaged 1.5 percent, up from 1.1 percent last week; at today’s rate, the real return on three-month Treasury bills is -60 basis points.

Real Yield (Adjusted for Monetary Inflation) Three-Month T-Bill Yield

Real Yield (Adjusted for Monetary Inflation) Three-Month T-Bill Yield

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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