Inflation Scorecard: Dollars Get Cheaper

By Brad Zigler

Real-time Monetary Inflation (last 12 months): 4.5%

Inflation-heralding commodities were at sixes-and-sevens this week as gold reached new highs without support from oil. Supply still weighs heavily on the oil market, especially after an unexpectedly large build in U.S. crude stockpiles was reported Thursday, along with further slackening in year-over-year gasoline demand. Ultimately, inflationary expectations continue to drive speculators into the gold market.

Key inflation indicators noted for the week ending Thursday:

• London's morning fix at $1,116 an ounce capped a week that featured gold prices rising 2.6%; the latest COMEX spot settlement of $1,106 represented a 1.6% increase for the week.

• Gold financing and lease rates loco London were essentially unchanged.

• The NYSE Arca Gold Miners Index (GDM), which tracks senior gold stocks, put in another corker of a week, rising 3.8% against a 1.9% gain in the Standard & Poor's 500 Composite.

• After bumping up against resistance at the $80-per-barrel level, crude oil prices pitched downward, giving up 3.4%; the nearby NYMEX contract for West Texas Intermediate crude last settled at $76.94; the three-month roll inched 2 cents wider to $1.98 per barrel.

• The disparate performance in the two commodities pushed the gold/oil ratio from a multiple of 13.7x to 14.5x.

• Three-month Treasury yields nosed up a basis point (0.01%) while LIBOR - the London Interbank Offered Rate - held steady, pegging the TED spread at 22 basis points; the spread monitors the yield premium demanded in interbank lending.

• Yields on Treasury long bonds held steady at 4.41%; the Treasury curve - now at 4.36% - has steepened 25 basis points in the last six months.

• The U.S. dollar reversed course against the euro, driving up the cost of the eurozone currency 1.6% to an average $1.4930 this week.

• The continuing pressure on the dollar lifted the monetary inflation rate by an average 29 basis points, putting the real yield on three-month Treasury bills at -4.06%.

Real-Time Monetary Inflation (click to enlarge)

Comments

[Moon Kil Woong:]

Owning US Treasuries overseas has proven disasterous this year. Equally bad is the loss to domesic holders but they don't realy notice it until they go to buy anything not made in China thanks to currency pegging. A rally built on dollar depreciation is not really sustainable.

I am doubtful that overseas investors will accept over 10% losses on their dollars 2010 like they did in 2009 without demanding considerably higher yields. The Federal Reserve better hold off on the liquidity pump next year unless they are plannning on expanding QE by a trillion dollars or so just to soak up the lack of any foreign US Treasury buyers.

Nov 14 02:44 AM

[The Economi...:]

Really, cause I just saw a pretty powerful equity rally take place since March.


On Nov 14 02:44 AM Moon Kil Woong wrote:
A rally built on dollar depreciation is not really sustainable.

Nov 17 08:33 AM