Inflation Scorecard: Market, Not Fed, Snugging Up

This week, the short end of the yield spectrum ticked up and gold spreads widened to indicate an expectation of eventual tightening by the Federal Reserve. Like last week, though, the interest rate boost held an accompanying rally in commodity prices in check.

Key inflation markers for the week ending Thursday:

• Morning gold fixes in London ended 4.0 percent higher, averaging $1,124; spot COMEX settlements, averaging $1,130, finished with a 2.2 percent gain; daily COMEX volume averaged 180,200 contracts, while open interest rose 5.5 percent to an average 481,100 contracts.
• Three-month London gold lease rates rose 1 basis point (0.1 percent) on declining forward rates.
• COMEX gold stocks rose by more than 3,000 ounces to 9.98 million and now cover 20.1 percent of futures open interest.
• Leadership in the gold stock sector was retained by junior issues comprising the Market Vectors Junior Gold Miners ETF (NYSE: GDXJ). GDX netted a 6.4 percent gain compared with the 4.9 percent rise in the Market Vectors Gold Miners ETF (NYSE: GDX), a fund made up of senior producers; a 1.8 percent increase in the S&P 500 dropped its correlation to GDX a couple of percentage points to 63 percent.
• NYMEX crude oil climbed 2.6 percent to an average price of $79.40; the gold/oil multiple ended slightly lower at 14.1x.
• Three-month Treasury bill rates and Libor were essentially flat, while Fed funds traded 4 basis points higher; the TED spread - the yield premium sought for interbank loans - ended at another historic low of 12 basis points.
• COMEX-implied one-year interest rates jumped above 1 percent, pushing the premium over Treasurys up to 70 basis points.
• A one-point uptick in long bond rates flattened the Treasury yield curve to 443 points.
• The U.S. dollar gave ground to the euro, falling 0.9 percent in interbank dealings; cross rates averaged $1.3585.
• Year-over-year monetary inflation averaged 2.2 percent, up from last week's 2.0 percent rate; the real return on three-month Treasury bills dropped to negative 234 basis points; long-term monetary inflation is running at an average annual rate of 4 percent.

Three-Month T-Bill Real Returns