Inflation Scorecard: Less Interest In Safe Havens (GLD, GDX, GDXJ)

This was clearly a bad week for bullion. The world’s reserve currencies all took revenge against gold, led by the euro’s 4.0 percent appreciation. Sterling gained 2.9 percent at the metal’s expense, while the Swiss franc climbed 2.1 percent. The yen rose 1.9 percent.

For the week ending Thursday, U.S. dollar-based indicators signaled less interest in safe havens and modestly higher inflation expectations:

  • In London’s morning fix, gold was last pegged at $1,365, off 1.2 percent from the week before; the metal’s average price for the week was $1,369; the spot COMEX settlement, at $1,347, was 2.9 percent lower after averaging $1,361; mean daily COMEX volume rose 5.8 percent to 213,486 contracts as open interest declined by 8,255 contracts to 581,113.
  • COMEX warehouse gold inventories rose by 65,789 ounces (2.0 tonnes) to 11.72 million and now cover 20.2 percent of open interest; immediate demand for COMEX bullion is equal to or less than 1,400 ounces, while 3.06 million ounces are in a deliverable position.
  • Vault assets of the SPDR Gold Trust (NYSE:GLD) fell by 13.7 tonnes (439,179 ounces) this week; the trust’s bullion holdings now stand at 1,251.4 tonnes.
  • The average cost of protective gold puts were, on average, 11.6 percent more expensive this week; despite this, mean projected volatility, measured by the CBOE Gold Volatility Index (CBOE:GVZ), fell 1.1 points to 17.7 percent.
  • Gold lease rates rose by 4 basis points (0.04 percent) for a one-year term; on average, gold could be borrowed at 0.16 percent this week.
  • Gold equity investors’ taste for risk waned further as the share price of the Market Vectors Junior Gold Miners ETF (NYSE:GDXJ) fell 5.2 percent, compared with a 2.5 percent decline in the value of the larger-cap Market Vectors Gold Miners ETF (NYSE:GDX); meantime, the S&P 500 Composite slipped 0.3 percent.
  • The correlation of gold producers’ stocks to the S&P 500 dropped 12 points to 7 percent; the blue-chip benchmark’s correlation to bullion declined by 5 points to 3 percent.
  • WTI spot crude oil slumped 2.6 percent to $89.05; the gold/oil multiple also fell, dropping to 15.0x from 15.3x.
  • The internal financing rate in the COMEX gold term structure widened its discount to one-year Treasurys to 13 basis points; the break below a trend line established last August reflects the market’s moderating expectations for further rate increases; the one-year COMEX contango fell 5.9 percent to $10.80 an ounce this week.
  • Interbank yield spreads ticked up slightly this week; tracking higher Treasury yields, the one-year TED spread nosed up a basis point to average 0.51 percent.
  • The average yield on the long bond rose from 4.49 percent to 4.56 percent this week, steepening the yield curve by 6 basis points; over the past six months, the yield on the 30-year Treasury bond has risen 61 basis points.
  • The U.S. dollar declined 3.3 percent against the euro, averaging a $1.3330 cross rate in interbank trading.
  • The disinflation rate, measured by the HAI Monetary Inflation Index, edged closer to zero this week; daily checks on the one-year monetary inflation rate averaged -1.2 percent vs. -2.5 percent last week; at today’s rate, the real return on three-month Treasury bills is 39 basis points.

 Real Three-Month T-Bill Yields (Adjusted For Monetary Inflation)

Real Three-Month T-Bill Yields (Adjusted For Monetary Inflation)

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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