Inflation Scorecard: U.S. Inflation on the Rise

By Brad Zigler

Real-time Monetary Inflation (last 12 months): 0.6%

The Swiss franc took front-runner status this week in the derby against bullion, gaining 2.0 percent. Sterling trailed close behind with a 1.8 percent rise as the euro and yen rounded out the reserve currency peloton with gains of 0.7 and 0.6 percent, respectively.

For the week ending Thursday, the U.S. dollar showed signs of inflation in a number of market indicators:

• Morning gold fixes in London averaged $1,331 and were 0.4 percent lower when last set at $1,332; COMEX spot, however, was 2.6 percent higher at $1,352 after averaging $1,340; average daily COMEX volume slid 10.0 percent to 244,611 contracts; open interest declined by another 28,179 contracts to 463,048.

• COMEX gold inventories fell by 212,164 ounces (6.2 tonnes) to 11.38 million and now cover 24.6 percent of open interest; immediate demand for COMEX bullion is no more than 166,200 ounces; 2.93 million ounces are in a deliverable position.

• Bullion assets of the SPDR Gold Trust (NYSE Arca: GLD) were built up by 2.7 tonnes (87,804 ounces) to end the week at 1,229.3 tonnes.

• The average cost of protective gold puts slumped 23.6% percent, while mean projected volatility, measured by the CBOE Gold Volatility Index (CBOE: GVZ), declined to 17.7 percent.

• One-year gold lease rates rose by 2 basis points (0.02 percent) to an average of 0.23 percent.

• The risk appetite of gold equity investors was honed this week; the share price of the Market Vectors Junior Gold Miners ETF (NYSE Arca: GDXJ) jumped 10.6 percent, while the Market Vectors Gold Miners ETF (NYSE Arca: GDX), made up of larger producers, rose 5.2 percent; in contrast, the S&P 500 Composite gained 0.6 percent.

• Gold producers' stock prices moved along the path of the S&P 500; GDX's correlation to the blue-chip benchmark increased 3 points to 13 percent; at the same time, the S&P's correlation to bullion hung up at -17 percent

• WTI spot crude oil prices rose by 5.7 percent to $90.54, pushing the gold/oil multiple down from 15.3x to 14.8x.

• COMEX financing rates dropped to a 38-basis-point discount to one-year Treasurys, bolstering market expectations for yet-lower yields; the one-year COMEX contango slumped 14.7 percent to $8.70 an ounce.

• Interbank yield spreads remained sticky as one-year TED spreads mired at 0.51 percent

• The long end of the Treasury yield curve moved 5 basis points higher, widening the spread against three-month bills to an average 446 basis points; six months before, the curve was 404 points wide.

• The euro gained 1.0 percent against the U.S. dollar, averaging a $1.3707 cross rate in interbank trading.

• Inflation, measured by the HAI Monetary Inflation Index, turned up this week; daily readings in the one-year inflation rate, which averaged 0.0 percent the previous week, rose to 0.5 percent this week; at today's rate, the real return on three-month Treasury bills is -18 basis points.

Real 3-Mo. T-Bill Rates (adjusted for the Monetary Inflation Index)