The Gold Economy

By Brad Zigler

Real-time Monetary Inflation (last 12 months): -1.3%

Gold continued to rally against Continental currencies this week but lost 0.3% against the Japanese yen. Bullion rose 2.0% in euros, 1.7% in sterling and 1.3% in Swiss francs.

U.S. dollar-denominated indicators for the week ending Thursday included:

• London morning gold fixes inched 0.4% higher to $1,200 after averaging $1,199; COMEX spot settlements averaged $1,203 and finished at $1,215; average daily volume for COMEX gold fell 15.1% to 106,988 contracts on light buying as open interest climbed by 5,877 contracts to 525,653; COMEX gold inventories were pared by 1.76 tonnes (56,559 ounces) to 11.119 million ounces; warehouse stocks now cover 21.4% of gold open interest.

• Three-month London gold lease rates fell 2 basis points (0.02%).

• A 4 tonne addition to the bullion holdings of the SPDR Gold Shares Trust (GLD) which raised the trust’s metal assets to 1,286.7 tonnes.

• The stocks of gold producers comprising the Market Vectors Gold Miners ETF (GDX) appreciated 1.3%, outperforming the issues in the Market Vectors Junior Gold Miners ETF (GDXJ), which gained 0.4%; the 3.8% slump in the S&P 500 Composite lowered its correlation to the GDX stocks to 43% while shaving down its correlation to bullion to 21%.

• NYMEX WTI crude oil prices slid 7.6 percent to $75.74 per barrel; the gold/oil multiple shot up from 14.6x to 16.0x.

• An uptick in the three-month Treasury bill yield, counteracted by an easing in Libor, kept the TED spread flat at 37 basis points.

• Money rates embedded in the COMEX gold futures term structure continued on a deflationary trajectory, widening the discount to one-year Treasurys to 36 basis points.

• Long bond yields fell 11 basis points to 3.94%; the 3-month to 30-year yield curve flattened to 377 points.

• A reversal in the euro’s trend against the U.S. dollar as cross rates averaged $1.3169 and finished at $1.2982 for a 1.1% loss.

• Further erosion in monetary disinflation as the average one-year rate rose to -1.1% from -1.7% . Today’s rate, the real return on three-month Treasury bills is 151 basis points.

(Click to enlarge)

Real (Monetary Inflation-Adjusted) T-Bill Yields

Disclosure: None