Inflation Scorecard: Still Cool

By Brad Zigler

Real-time Monetary Inflation (last 12 months): 4.2%

Further signs of a turnaround in the U.S. economy followed on the heels of last week's improvement in third-quarter gross domestic product. The closely followed Institute for Supply Management's Purchasing Managers Index jumped more than 3 percentage points in October, indicating a continuing rebound in the U.S. manufacturing sector. Additional ISM data showed the overall domestic economy grew for the sixth consecutive month in October.

Key inflation indicators noted for the week ending Thursday:

• Gold was fixed at $1,088 an ounce in London, up 5.2% from the previous week; morning fixes averaged $1,066.75 vs. mean COMEX spot settlements of $1,070.60; COMEX prices were up 4 percent on the week.

• Three-month gold financing rates loco London inched up 3 basis points (0.03%), knocking 4 basis points off the return for metal leases.

• Gold stocks, measured by the NYSE Arca Gold Miners Index (GDM), reversed from last week's swoon, jumping 6.6% to outperform the broader equity market. The Dow Jones Industrial Average gained a scant 0.4% for the week.

• Crude oil prices remained range-bound this week, falling 25 cents a barrel, or 0.3%. NYMEX front-month settlements averaged $78.95 a barrel. The three-month roll widened further to $1.92 a barrel, bringing annualized carrying costs up to 2.1%.

• The gold/oil ratio jumped to a 13.7x multiple.

• Three-month Treasury yields at 4 basis points and LIBOR's - the London Interbank Offered Rate - holding pattern pressured the TED spread lower, finishing the week at 24 basis points. The spread reflects the yield premium demanded in interbank lending.

• Yields on the Treasury's long bond climbed 6 basis points to 4.41%, further steepening the yield curve. Six months ago, 30-year paper yielded 4.06%.

• The U.S. dollar continued to strengthen against the euro. The eurozone currency cost an average $1.4748 this week, 1.181 cents, or 1.2%, less than last week.

• The combined effect of the forgoing moderated the monetary inflation rate this week. The rate by which currency bloat is measured over the past year dipped by 9 basis points, while the average daily reading of HAI's real-time proprietary inflation metric was 4% this week, making the real yield on a three-month Treasury bill -3.96%.

Real (Inflation-Adjusted) Yields On Three-Month Treasury Bills