Real-time Monetary Inflation (last 12-months): 2.2%
Retail prices, as reported by the U.S. Bureau of Labor Statistics' Consumer Price Index, were unchanged in February, bringing the yearlong increase for the index down to 2.1 percent. Wholesale prices reflected in the Producer Price Index for Finished Goods fell 0.6 percent last month, dropping the year-over-year inflation rate to 4.4 percent.
Other inflation markers for the week ending Thursday:
Retail prices, as reported by the U.S. Bureau of Labor Statistics' Consumer Price Index, were unchanged in February, bringing the yearlong increase for the index down to 2.1 percent. Wholesale prices reflected in the Producer Price Index for Finished Goods fell 0.6 percent last month, dropping the year-over-year inflation rate to 4.4 percent.
Other inflation markers for the week ending Thursday:
- The London morning gold fix ended 1.5 percent higher, though average prices fell to $1,118; spot COMEX settlements averaged $1,116, ending at a 2.2 percent higher price; average daily COMEX volume fell to 170,100 contracts; open interest rose 0.7 percent to an average 504,200 contracts.
- Three-month London gold lease rates held steady after a basis point (0.1 percent) increase in forward rates and Libor neutralized each other.
- COMEX gold stocks rose by 23,800 ounces and now total 10.02 million ounces, enough to cover 19.7 percent of open interest.
- Gold stocks, along with equities in general, rose, though at disparate rates. The 2.8 percent return of the Market Vectors Junior Gold Miners ETF (NYSE Arca: GDXJ) doubled the 1.4 percent appreciation in the Market Vectors Gold Miners ETF (NYSE Arca: GDX), a proxy for major gold producers; the S&P 500 Composite also rose 1.4 percent; the correlation of GDX to the blue chip benchmark softened to 62 percent.
- Nearby NYMEX crude oil inched up 0.1 percent, though the average price fell to $81.57; the gold/oil multiple ticked up to 13.7x.
- Rates on three-month Treasury bills and Libor rose a basis point, keeping the average TED spread at 11 basis points; the spread represents the return sought by financial institutions for interbank loans.
- One-year finance costs embedded in COMEX gold futures rose a couple of basis points, but held the 10-point premium over Treasurys seen last week.
- Long Treasury bond yields fell 7 basis points to 4.59 percent, flattening the yield curve to 444 points.
- The U.S. dollar tumbled 1.1 percent against the euro; cross rates in interbank dealings averaged $1.3725.
- Year-over-year monetary inflation eased from last week's 2.4 percent rate; the real return on three-month Treasury bills ended at negative 185 basis points; long-term monetary inflation now averages 4 percent per annum.
Real Return On Three-Month T-Bill
Real-time Monetary Inflation (last 12 months): 2.7%
About a month ago, the option market advertised a sale on gold. When we wrote about it in a Desktop column ("Post-Holiday Gold Sale," we considered the likelihood of a sell-off to the midway point of gold's July-December rally. Basis the February COMEX contract, that would mean a drop to the $1,068 level or so.
Bulls looking for below-market entry points were selling February puts, struck at $1,070, as a sort of limit order "with benefits." The benefit, of course, was the premiumthen $14.30 an ouncecollected for writing the option.
With January now drawing to a close, gold's see-sawed higher and lower. On Friday, February gold got down to $1,081.90 before settling at $1.092.50. Given the volatility of the past three trading sessions, a bullish bounce is likely sometime today, but guess what? Those puts are about to die out of the money (COMEX options expire on the fourth-to-last business day of the month preceding the delivery month of their underlying futures).
That's good news for the put writers. At last look Friday, the options settled at $2.10. Remember, a diminution in option premium is a plus for the seller, as less and less of the premium collected upon its sale needs to be expended to cover the writer's liability.
Unless gold decides to shed another $25 today, these puts are likely to remain unexercised. And that means put writers got paid $1,430 a contract just for placing limit orders to buy futures.
That's quite a deal: making 1,430 simoleans for not entering the futures market. If only we had a robust derivatives markets that would similarly afford cash rewards for politicians to forgo entering electoral contests.
A guy can dream, can't he?
About a month ago, the option market advertised a sale on gold. When we wrote about it in a Desktop column ("Post-Holiday Gold Sale," we considered the likelihood of a sell-off to the midway point of gold's July-December rally. Basis the February COMEX contract, that would mean a drop to the $1,068 level or so.
Bulls looking for below-market entry points were selling February puts, struck at $1,070, as a sort of limit order "with benefits." The benefit, of course, was the premiumthen $14.30 an ouncecollected for writing the option.
With January now drawing to a close, gold's see-sawed higher and lower. On Friday, February gold got down to $1,081.90 before settling at $1.092.50. Given the volatility of the past three trading sessions, a bullish bounce is likely sometime today, but guess what? Those puts are about to die out of the money (COMEX options expire on the fourth-to-last business day of the month preceding the delivery month of their underlying futures).
COMEX/CME Gold (Feb. '10)
That's good news for the put writers. At last look Friday, the options settled at $2.10. Remember, a diminution in option premium is a plus for the seller, as less and less of the premium collected upon its sale needs to be expended to cover the writer's liability.
Unless gold decides to shed another $25 today, these puts are likely to remain unexercised. And that means put writers got paid $1,430 a contract just for placing limit orders to buy futures.
That's quite a deal: making 1,430 simoleans for not entering the futures market. If only we had a robust derivatives markets that would similarly afford cash rewards for politicians to forgo entering electoral contests.
A guy can dream, can't he?
Real-time Monetary Inflation (last 12 months): 3.9%
The gold market, like any other, represents a meeting place of ideas. The prevailing sentiment among bulls shifted from unbridled enthusiasm to worry last week as gold's price took another $49 dump. All told, spot metal's sold off about $100 since peaking Dec. 3.
It's at that precipice that bulls and bears stared each other down. Apparently, the bulls blinked.
Latecomers to the gold ascent had been getting their heels nipped by pundits' natterings about a bubble, so doubt ripened in the rarified atmosphere above $1,200. But, let's face it: The breathtaking rise in the metal's price begged for a correction. And what a correction it was! The avalanche of Dec. 4 wiped out seven days of pretty-much-uninterrupted price climbs.
Friday, COMEX gold lost more than $6 on a substantial volume spike. More telling, though, was the pickup in open interest. Aggressive sellingnew shortspiled in near the session's end, reversing the week's liquidation trend. You've got to have brass, er, appurtenances, to initiate a gold position over a weekend these days. Now, it's the sellers who are emboldened.
So, gold was sold short last week by the brassers. To what end? Are they expecting a massive sell-off? A reversal of the bull market? Well, some might. Others are willing to settle for the dispersion of some market froth.
It's not always easy to know where the fundamentals end and the bubbling begins, but a look at the gold market's momentum can give us a clue.
COMEX/NYMEX Gold Momentum
The white hashed band on the chart represents one standard deviation in COMEX gold's delta-adjusted open interest (i.e., options plus futures). Excursions outside the band, you'll note, are generally associated with price extremes. See how the triple top in open interest between November 2007 and March 2008above one standard deviationset up the double top in gold's price?
Gold's open interest again ventured above the one-standard-deviation threshold in September as spot prices jumped the $1,000 barrier.
Does this mean the froth dissipates if gold open interest slumps back below the 600,000-contract level or its price dips below $1,000?
Probably more the former than the latter. Gold can advance above $1,000 without bubbling. To do so, however, gold would need to be more a stealth play, like the $100-plus advance made between January and October of 2007quiet and deliberate, keeping open interest in its normal range.
What are the odds of that now?
The gold market, like any other, represents a meeting place of ideas. The prevailing sentiment among bulls shifted from unbridled enthusiasm to worry last week as gold's price took another $49 dump. All told, spot metal's sold off about $100 since peaking Dec. 3.
It's at that precipice that bulls and bears stared each other down. Apparently, the bulls blinked.
Latecomers to the gold ascent had been getting their heels nipped by pundits' natterings about a bubble, so doubt ripened in the rarified atmosphere above $1,200. But, let's face it: The breathtaking rise in the metal's price begged for a correction. And what a correction it was! The avalanche of Dec. 4 wiped out seven days of pretty-much-uninterrupted price climbs.
Friday, COMEX gold lost more than $6 on a substantial volume spike. More telling, though, was the pickup in open interest. Aggressive sellingnew shortspiled in near the session's end, reversing the week's liquidation trend. You've got to have brass, er, appurtenances, to initiate a gold position over a weekend these days. Now, it's the sellers who are emboldened.
So, gold was sold short last week by the brassers. To what end? Are they expecting a massive sell-off? A reversal of the bull market? Well, some might. Others are willing to settle for the dispersion of some market froth.
It's not always easy to know where the fundamentals end and the bubbling begins, but a look at the gold market's momentum can give us a clue.
COMEX/NYMEX Gold Momentum
The white hashed band on the chart represents one standard deviation in COMEX gold's delta-adjusted open interest (i.e., options plus futures). Excursions outside the band, you'll note, are generally associated with price extremes. See how the triple top in open interest between November 2007 and March 2008above one standard deviationset up the double top in gold's price?
Gold's open interest again ventured above the one-standard-deviation threshold in September as spot prices jumped the $1,000 barrier.
Does this mean the froth dissipates if gold open interest slumps back below the 600,000-contract level or its price dips below $1,000?
Probably more the former than the latter. Gold can advance above $1,000 without bubbling. To do so, however, gold would need to be more a stealth play, like the $100-plus advance made between January and October of 2007quiet and deliberate, keeping open interest in its normal range.
What are the odds of that now?
Real-time Monetary Inflation (per annum): 4.0%*
After a day like yesterday, you ought to expect a little overnight profit-taking. And that's exactly what happened in the crude oil market. Yesterday's bullish inventory report from the U.S. Energy Department (see "Wow! Where'd The Oil Go?") drove front-month bids for crude 4.6% higher to $72.42 a barrel by the end of the NYMEX day session.
Spot COMEX gold followed oil's lead with a tepid 0.6% gain to $943.30 an ounce.
That was all it took to knock the gold/oil ratio below 13-to-1 for the first time since November 2008. The ratio expresses gold's purchasing power in the number of barrels of crude an ounce of metal can purchase. At the closing bell Wednesday, an ounce of spot gold could buy 12.9 barrels of oil. The 13-barrel level has been supporting the ratio since June.
Gold's lost a lot of purchasing power this year. In February, the multiple nearly touched 28 barrels before tumbling to its summer level. The ratio's extremely volatile over the longer term. Just a year ago, with oil prices still above $100 a barrel, an ounce of gold could buy just seven barrels.
Gold/Oil Ratio
Many observers consider a decline in the ratio a harbinger of economic recovery to come. They see panic buying of gold cooling as oil prices regain ground lost in last winter's sell-off. This year, crude prices have jumped 62% against an 8% rise in gold.
To get some sense of equilibrium in this volatile metric, though, you have to look out over a longer time frame. In the past four decades, the median yearly ratio is 13.4 barrels. That said, you could look at the ratio's summertime hovering around the 13-multiple as a sort of historic stasis. Year-to-date, the ratio's averaged 17.5 barrels.
How's that stack up historically? Middling, actually. The ratio's most extreme years were 1988, when the multiple averaged 29.4, and 2005, when it bottomed at 8.9 barrels.
It's sort of nice to know that, even after the roller coaster ride of the past few months, it's still a pretty average year.
*Note: To provide a longer-term perspective, we've pushed back the base for our real-time monetary inflation indicator to May 2006. The base previously was January 2008. The indicator represents the average annual rate of monetary inflation over the period. The current 12-month inflation rate is -0.2%.
After a day like yesterday, you ought to expect a little overnight profit-taking. And that's exactly what happened in the crude oil market. Yesterday's bullish inventory report from the U.S. Energy Department (see "Wow! Where'd The Oil Go?") drove front-month bids for crude 4.6% higher to $72.42 a barrel by the end of the NYMEX day session.
Spot COMEX gold followed oil's lead with a tepid 0.6% gain to $943.30 an ounce.
That was all it took to knock the gold/oil ratio below 13-to-1 for the first time since November 2008. The ratio expresses gold's purchasing power in the number of barrels of crude an ounce of metal can purchase. At the closing bell Wednesday, an ounce of spot gold could buy 12.9 barrels of oil. The 13-barrel level has been supporting the ratio since June.
Gold's lost a lot of purchasing power this year. In February, the multiple nearly touched 28 barrels before tumbling to its summer level. The ratio's extremely volatile over the longer term. Just a year ago, with oil prices still above $100 a barrel, an ounce of gold could buy just seven barrels.
Gold/Oil Ratio
Many observers consider a decline in the ratio a harbinger of economic recovery to come. They see panic buying of gold cooling as oil prices regain ground lost in last winter's sell-off. This year, crude prices have jumped 62% against an 8% rise in gold.
To get some sense of equilibrium in this volatile metric, though, you have to look out over a longer time frame. In the past four decades, the median yearly ratio is 13.4 barrels. That said, you could look at the ratio's summertime hovering around the 13-multiple as a sort of historic stasis. Year-to-date, the ratio's averaged 17.5 barrels.
How's that stack up historically? Middling, actually. The ratio's most extreme years were 1988, when the multiple averaged 29.4, and 2005, when it bottomed at 8.9 barrels.
It's sort of nice to know that, even after the roller coaster ride of the past few months, it's still a pretty average year.
*Note: To provide a longer-term perspective, we've pushed back the base for our real-time monetary inflation indicator to May 2006. The base previously was January 2008. The indicator represents the average annual rate of monetary inflation over the period. The current 12-month inflation rate is -0.2%.
