Inflation Scorecard: Fed Holds Course


"This week's dip in commodity prices gave the Fed maneuvering room to keep interest rates unchanged"

This week's dip in commodity prices gave the Fed maneuvering room to keep interest rates unchanged.

Key inflation markers for the week ending Thursday:
  • London gold prices slipped another 1.1% at the morning fix to an average price of $1,095; the average spot COMEX settlement was $1,090, reflecting a 1.7% decline; COMEX activity was dominated by long liquidation as average volume jumped 21.1% to 296,000 contracts and open interest fell 7.8% to a daily average of 517,000 contracts.
  • Three-month London gold lease rates ticked up a basis point (0.01%) as forward rates slid lower on Thursday.
  • COMEX gold stocks declined by 16,590 ounces; at 9.87 million ounces, inventories cover 19.1% of COMEX open interest.
  • Junior gold mining stocks, represented by the Market Vectors Junior Gold Miners ETF (NYSE Arca: GDXJ), underperformed senior issues for the second week in a row, falling 5.6%; the Market Vectors Gold Miners ETF (NYSE Arca: GDX) eased 3.6%, while the S&P 500 Composite dipped 2.9%.
  • NYMEX nearby crude oil gave up 3.2% to average $74.44, notching up the gold/oil multiple from 14.4x to 14.7x.
  • Following on a 3 basis point hike in Treasury bill rates, the three-month TED spread fell to an average 19 basis points; lower spreads reflect financial institutions' greater willingness to lend to each other.
  • COMEX-implied one-year interest rates continued to contract; rates now command an 18 basis point premium to Treasuries, nearly half last's week's level.
  • Long bond rates rose 7 basis points, steepening the Treasury yield curve to 450 basis points.
  • The USD continued to strengthen against the euro, which lost 0.9% in interbank dealings for an average cross rate of $1.4112.
  • YOY monetary inflation averaged 2.6%, down from last week's 3.1% mean; consequently, the real return on three-month Treasury bills moderated to negative 216 basis points; monetary inflation has been running at an average annual rate of 4.4% since 1999.
Real Return on Three-Month T-Bill

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