The Hurdle Went Flat. Copper Repriced. Gold and Silver Did Not.
A scarcity asset pays no coupon, so its price is a discount calculation: take a government bond's yield, subtract expected inflation, and what remains is the rate every gold bar, copper tonne and bitcoin is marked against. Call it the hurdle. For a month this column has tracked the hurdle as the price of the whole complex, and last week the hurdle finally fell 12 basis points. Nothing in the complex repriced. This week the fall stopped: the 10yr real yield has closed five sessions inside 1.5 basis points, and the dollar turned up 0.643. Against a flat hurdle and a firmer currency, copper gained rank and gold, silver, bitcoin and ether all lost it. That split is the information. A metal that rises while its own currency rises is not being bought as a hedge. Ahead: which leg did the repricing, what the composite did with it, and the levels at which this read breaks.
The hurdle went flat
The 10yr real yield is 2.643% - the 10yr at 4.993% less inflation compensation of 2.35% (breakeven as of 27 October).1
A week ago the same measure read 2.767% on a 5.117% nominal and a 2.35% breakeven.1 The whole 12.4 basis point fall is the nominal leg. Inflation compensation is unchanged at 2.35% on both reads, so nothing in the move was a change in expected inflation.
The fall itself happened before this column's last print. Since 23 October the real yield has closed at 2.633%, 2.648%, 2.648%, 2.646% and 2.643% - five reads inside a 1.5 basis point band.1
Two weeks ago it was 2.887% (14 October). The hurdle has come down 24.4 basis points in a fortnight and has now stopped moving.
A discount rate that falls and one that sits still are different objects. The first asks the complex to reprice. The second asks it to hold the repricing it has already done. This week the answer came back split by asset.
The dollar turned with it
The dollar index is 102.455, up 0.643 on the week, percentile rank 45.1 from 40.7, z-score 0.208.2
A week ago this column had the currency falling 0.735 while the metals lost rank, and called that the unfriendly version of the test. The test has now flipped: the currency rose and the metals lost more rank.
The move is not uniform across the pairs. The euro is 1.1122, down 0.0105 on the week - 0.94%. The yen is stronger, at 157.916 per dollar, 0.423 lower.2 The euro carries well over half the index, so a euro down 0.94% more than offsets a yen up 0.27%.
That ordering matters for what follows. A currency index driven by one leg falling is a statement about that leg's own policy and growth, not a general bid for dollars. It is still a headwind for anything quoted in dollars.
Copper took the flat tape
Copper is 6.6515, up 0.1005 on the week - 1.5% - percentile rank 95.0 from 93.5, z-score 1.907.3
The recovery is bigger than the week. The rank bottomed at 89.2 on 23 October and has added 5.8 points in the five sessions since, the same stretch in which the real yield stopped falling.3
The last session added 0.0295, so the move was built through the week rather than printed in one close.
Copper did this against a rising dollar, with the discount rate unchanged. A metal rising while the unit it is quoted in rises is the one thing a debasement bid cannot produce: if the buying were about the currency, a firmer currency would take the bid away.
Copper/gold is 0.00164 against 0.0016 a week ago.3 Both legs are quoted in dollars, so the ratio strips the currency out. It rose, and the only way it rises is copper outperforming gold.
The monetary legs did not
Gold is 4,042.70, down 102.40 on the week - 2.5% - rank 62.4 from 64.9.4
Silver is 53.965, down 3.457 - 6.0% - rank 34.3 from 37.9. Silver is the weakest leg in the complex at the bottom third of its own range.4
Bitcoin is 80,754.52, down 275.45 on the week - 0.34% - rank 51.5 from 55.7. The 30-day trend is minus 3.24%; the last five sessions minus 0.34%.5
Ether is 2,348.00, down 34.99 - 1.5% - rank 26.1 from 28.9.5
Four legs, one direction, and the same direction as the dollar. These are the assets whose case is denominated in the unit the index measures, and they traded as such.
Hold the two groups side by side. Copper and crude added rank this week. Gold, silver, bitcoin and ether gave it back. Same hurdle, same currency, opposite response - which means the hurdle is not what is pricing this complex right now.
Crude kept its bid and gave back its spread
West Texas crude is 101.68, up 4.42 on the week - 4.5% - rank 78.0 from 76.3, z-score 2.104, the highest z in the complex.6
Brent is 111.29, up 2.47 on the week, rank 65.6.6
The two marks split in the final session: WTI added 1.78 while Brent gave back 2.59. The Brent-WTI spread went from 13.98 to 9.61 in one day, the waterborne grade falling against the landlocked one.6
This column has carried crude as the leg whose constraint is physical in a way that reports weekly - inventories, tanker bookings, refinery runs - rather than a discount rate. This week it is also one of two legs that added rank while the dollar rose and the hurdle held flat.
Whether the spread narrowing is a freight story or a crude-quality story is not in this snapshot. What is in the snapshot is that the benchmark quoted inland rose while the one quoted on water fell, on the same day, by a wider margin than either moved on the week.
The composite moved on the funding leg
The composite headline is +0.325, regime NEUTRAL, on 5 of 5 sub-indices. A week ago it read +0.285, also NEUTRAL.7
Rates & Policy is still dominant at +0.917, from +1.204. Scarcity is +0.78 from +0.755; Credit & Stress +0.296 from +0.243; Growth & Inflation -0.06 from -0.056.7
Liquidity is -0.306 from -0.722, a 0.416 point move and much the largest in the set. Almost all of it is one input: secured overnight money against the administered rate went from -0.6 to +0.6 as SOFR fixed 3.93% against an IORB of 3.90%, plus 3 basis points.7,8
The scarcity sub-index rose 0.025 in a week when gold, silver, bitcoin and ether all fell. Its largest input, the real-yield z-score, fell from 1.61 to 1.40 - the hurdle is lower, so the sub-index should have eased. Its bitcoin trend input turned from -0.10 to +0.16 only because the 30-day trend went negative. Its gold trend input is null.7
That is the mechanical fact to hold. The scarcity sub-index is reading a still-high hurdle and a falling bitcoin, both of which describe tightness rather than demand. The prices that are supposed to confirm tightness fell, except copper's and crude's.
The composite is a pressure gauge, not a price. It is not saying the complex is being bought. It is saying the rate side is still the tightest thing on the tape and the funding side just loosened a notch.
The levered claim tracked its asset this time
The Strategy common is $141.40 (27 October), down 1.32 on the week - 0.92% - rank 23.0 from 24.1.9
STRC is 99.49, up 0.78, rank 99.9 from 97.1. STRF is 101.10, down 1.70, rank 71.0 from 75.5. STRK is 70.15, down 1.10, rank 32.7 from 34.5.9
Last week the common fell 6.2% while bitcoin rose 0.7% and the hurdle fell 12.0 basis points, and this column flagged the sign as the opposite of what both inputs implied. This week bitcoin fell 0.34% and the common fell 0.92%: same direction, smaller gap.
The wrapper still moves harder than the asset - 0.92% against 0.34% is roughly 2.7 times - which is what a levered claim on a flat asset does when what is being repriced is its own premium rather than the thing it owns.
The shortest-dated claim has retaken the top of its range: STRC at rank 99.9, having given the range up on 21 October, while the common sits at rank 23.0 and the long-dated STRF gave back 4.5 rank points. Cash-like paper at par and a levered equity claim on the same asset are being priced as two different things, which is what they are.
What would confirm it, and what would break it
The frame this column has carried for a month is the hurdle as the price of the complex. It made a specific prediction last week and got half of it: the hurdle fell, and the complex did not follow as a block. The split inside the complex turned out to be the information, not the level.
Confirmation of the copper read is a real yield holding between 2.60% and 2.70% while copper keeps rank 90 or better and gold stays below rank 65. That separates a metal bid from a currency bid and it is testable inside a week.
The invalidation of that read is copper back below rank 89 - the 23 October low - with the dollar still rising. That would say the rebound was the currency's pause, not the metal's own tightness.
The invalidation of the frame itself is a real yield below 2.55%, last seen at 2.566% on 11 September, with copper still gaining rank. At that point the complex is trading on something other than the hurdle and this column's lens is the wrong one.
The other side is a real yield back above 2.85% with copper holding rank 90 or better, which restores the level trade from the direction it ran for three weeks into mid-October.
Crude is the tiebreak. WTI at rank 78.0 with the Brent-WTI spread at 9.61 is a physical bid. If the spread re-widens above 12 while WTI keeps its rank, the bid is barrels and freight; if WTI loses rank while copper holds, the industrial story is copper's alone.
Notes
1. 10yr real yield 2.643% on a 10yr of 4.993% and a breakeven of 2.35% (FRED T10YIE, as of 27 October), against 2.767% on a 5.117% nominal and a 2.35% breakeven a week earlier; 2.887% two weeks earlier (14 October). Prior five closes 2.633%, 2.648%, 2.648%, 2.646%, 2.643% (23 to 28 October). Sources: exchange close for the nominal; FRED T10YIE for inflation compensation.
2. Dollar index 102.455 (28 October), +0.643 on the week, 45.1st percentile from 40.7th, z 0.208. EUR/USD 1.1122, -0.0105 on the week; USD/JPY 157.916, -0.423. Source: ICE DXY and interbank closes.
3. Copper $6.6515/lb (28 October), +$0.1005 on the week, +$0.0295 on the day, 95.0th percentile from 93.5th, z 1.907; rank low 89.2 on 23 October. Copper/gold 0.00164 against 0.00160 a week earlier. Source: COMEX front-month close.
4. Gold $4,042.70 (28 October), -$102.40 on the week, 62.4th percentile from 64.9th; silver $53.965, -$3.457, 34.3rd percentile from 37.9th. Source: exchange closes.
5. Bitcoin $80,754.52 (28 October), -$275.45 on the week, -3.24% over 30 days, -0.34% over 5 sessions, 51.5th percentile from 55.7th; ether $2,348.00, -$34.99, 26.1st percentile from 28.9th. Source: spot closes.
6. WTI $101.68 (28 October), +$1.78 on the day, +$4.42 on the week, 78.0th percentile from 76.3rd, z 2.104; Brent $111.29, -$2.59 on the day, +$2.47 on the week, 65.6th percentile. Brent-WTI spread $9.61, from $13.98 the session before. Source: NYMEX and ICE front-month closes.
7. Composite headline +0.325, regime NEUTRAL, on 5 of 5 sub-indices; Rates & Policy +0.917, Scarcity +0.780, Credit & Stress +0.296, Growth & Inflation -0.060, Liquidity -0.306. A week ago +0.285, with the same dominant sub-index. Scarcity inputs: real-yield z 1.40, bitcoin 30-day trend +0.16, gold trend null. Source: this site's composite, 28 October.
8. Secured overnight money 3.93% against an administered rate of 3.90% (NY Fed SOFR and FRED IORB, as of 27 October), a spread of plus 3 basis points; a week earlier minus 3. Reserve balances $2,962.6bn (FRED WRESBAL, as of 21 October - a week behind the market snapshot). Reverse repo take-up $0.2bn (FRED RRPONTSYD, as of 26 October).
9. MSTR $141.40 (27 October), -$1.32 on the week, 23.0th percentile from 24.1st; STRC $99.49 (+0.78, 99.9th from 97.1st), STRF $101.10 (-1.70, 71.0th from 75.5th), STRK $70.15 (-1.10, 32.7th from 34.5th). Source: exchange closes.
10. High-yield OAS 3.30% (FRED BAMLH0A0HYM2, as of 26 October); investment-grade OAS 0.90% (FRED BAMLC0A0CM, as of 26 October).
11. Initial claims 194k (FRED ICSA, week ended 17 October); continuing claims 1,728k (FRED CCSA, week ended 10 October); CPI +3.72% and core CPI +2.57% year on year (FRED CPIAUCSL and CPILFESL, September).
12. Treasury par curve, 23 October close: 2yr 4.69%, 5yr 4.82%, 10yr 5.00%, 30yr 5.33%; 2s10s 31.0 basis points. The par file has not printed 26-28 October; the 31.0 basis point corridor is the 23 October print and the market series puts 2s10s at 29.3 on 27 October. Source: US Treasury daily par yield curve.
13. Both charts are generated by script from this piece's own series: the real-yield and copper-rank path from the daily snapshots, and the rank changes measured against each series' own history. Colour encodes direction of rank, not magnitude of price.
| TENOR | LEVEL | 1D Δ | Z (3Y) | RANGE %ILE |
|---|---|---|---|---|
| 2Y | 4.610 | -0.060 | +1.39 | 78 |
| 5Y | 4.780 | -0.070 | +2.24 | 86 |
| 10Y | 4.980 | -0.070 | +2.51 | 84 |
| 30Y | 5.320 | -0.050 | +1.99 | 83 |