Inflation Scorecard: More Dollar Erosion

Includes: GDX, GDXJ, GLD
by: Hard Assets Investor

By Brad Zigler

Real-Time Monetary Inflation (Last 12 Months): 1.3%.

This week, gold knocked the world's reserve currencies down a peg - with the sole exception of the Swiss franc. While the Swissie moved up 0.6% against bullion, sterling slid 2.0% and the euro declined 1.0%. The yen gave up 0.6% to gold.

For the week ending Thursday, inflation in U.S. dollar-denominated assets accelerated:

  • London morning gold fixes wrapped up at $1,415 after averaging $1,399; COMEX spot settled 2.2% higher at $1,415; average daily volume jumped 24.8% to 155,736 contracts; open interest climbed another 25,297 contracts to 504,476.
  • COMEX gold inventories declined further, falling 174,076 ounces (5.4 tonnes) to 11.08 million; stocks now cover 22% of open interest; just ahead of the February contract's expiration, immediate demand for COMEX bullion amounts to no more than 6,100 ounces; 2.477 million ounces are in a deliverable position.
  • The SPDR Gold Trust's (NYSEARCA:GLD) vault assets slid 12.4 tonnes (399,955 ounces) to 1,211.6 tonnes.
  • The average cost of protective gold puts fell another 7.3% while projected volatility, measured by the CBOE Gold Volatility Index (GVZ), moved up 1.3 points to 16.6%.
  • One-year gold lease rates inched up 2 basis points (0.02%), finishing at 0.31%.
  • Junior miners reversed course this week with a 4.9% decline in the share price of the Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ); producers, represented by the Market Vectors Gold Miners ETF (NYSEARCA:GDX), slipped 1.2%, while the S&P 500 Composite declined 2.6%.
  • The S&P's correlation to GDX fell 4 points to 18%; its coefficient vs. bullion declined another 3 points to -23%.
  • WTI spot crude oil rocketed 12.8% higher to $97.28, dragging the average daily gold/oil multiple down to 15.0x from 16.1x.
  • A 3-basis-point widening in the discount between COMEX financing rates and one-year Treasurys bespoke market expectations of further yield declines; the one-year COMEX contango slumped 9.6% to $7.50 an ounce.
  • TED spreads firmed this week as the average interbank yield premium inched up a basis point to 0.52% for a one-year term.
  • Squeezed by an easing in long bond rates, the Treasury yield curve flattened another five ticks to 450 basis points.
  • The euro climbed 1.4% against the U.S. dollar to $1.374 after averaging $1.3696 in interbank trading.
  • Daily readings in the Monetary Inflation Index's one-year rate averaged 1.2% , up from last week's 0.7% pace; at today's rate, the real return on three-month Treasury bills is -52 basis points.

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U.S. Monetary Inflation (365-day change)

U.S. Monetary Inflation (365-day change)