By Brad Zigler | January 12, 2010 | 12:56 PM | 0 Comments
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Real-time Monetary Inflation (last 12 months): 2.7%
Sometimes it's good to be in last place. Take the currency derby as an example. A month ago, the price of gold was soaring to new highs in every reserve currency-Yankee dollars, euro, pounds sterling, yen and even Swiss francs. But after the first week of December, the jockeys steered their steeds off the course to partake of the holidays.
Everybody got back on track yesterday as gold rose across the currency board, rising within a cat's whisker of its December highs. Well, truth be told, the whisker's width varied by currency. The strongest gold price surge was in yen, now just 4 basis points (0.04 percent) short of its December record. Next was the euro, off 0.7 percent, followed by the pound at 1.6 percent and the Swissie at 2.8 percent. Guess who brought up the rear? Yup, the dollar. Gold's greenback price is still 5.2 percent short of its December apex.
To be sure, the price of gold accelerated faster in dollar terms through most of last year; the other world currencies only caught up at year's end.
This development is made all the more interesting by the widening of international credit spreads. Yesterday, the yield on 10-year Yankee notes, for example, reached a two-year record against German bunds.
Traders are starting to spread U.S. notes against bunds in anticipation of an uptick in American interest rates as U.S. gross domestic product increases.
Indeed, the domestic yield curve has been steepening, indicating increasing inflationary expectations. Yesterday the spread between three-month bills and the long bond reached 4.72 percent, another two-year high.
U.S. Treasury Yield Curve
And, as we've pointed out before, interest rate expectations embedded in the COMEX gold futures term structure imply a view that one-year rates ought to be yet 60 basis points higher.
Whether you're a believer in present or future inflation, the market's certainly seemed to have voted for it. And, as many a trader has discovered, it's hard to argue with the market.
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