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Gold aficionados have for many years contended with the plaints about the metal's sterility. "Gold doesn't earn interest" is a constant refrain heard from nonowners. But that's not necessarily true. Gold can offer a money market return regardless of its price trajectory. Spreads between gold futures' delivery months, in fact, implicitly reflect short-term rate expectations. The gold market, through cash-and-carry operations, tells us what traders think short-term rates ought to be. A cash-and-carry is accomplished by taking possession of gold through nearby futures (or the cash market) and redelivering the metal against a forward contract. A December 2010 gold contract, for example, might be purchased with the intent to take delivery and store the metal until the expiration of a December 2011 future sold short. If storage costs ran $10 per month per 100 oz. bar, a return of 1.1 percent could be earned currently. That's a 63 basis point (0.63 percent) premium over one-year Treasurys. In fact, the rates for one-year cash-and-carries - essentially "risk-free" transactions - have been, on average, 60 basis points above Treasurys this past quarter. Thus, the market's pointing the way to higher Federal rates. How so? Look back at cash-and-carries last year: Gold Cash-And-Carry (Dec-10/Dec-11) 
In mid-February 2008, the one-year carry return moved higher than the constant maturity Treasury rate, presaging a rebound in yields through midyear. In October, gold rates dropped below Treasurys, setting the stage for a year-end swoon in yields. When gold rates run ahead of Treasurys, there's generally some Fed snugging due (didn't Ben Bernanke say this weekend that the Fed must be open to raising interest rates to pop asset bubbles?). And, when Treasurys offer a yield premium over gold carry rates, interest rates generally decline. Gold rates are now headed back up. This implies two things: No. 1, if you don't like money market rates, you could get a yield pickup with a gold bear spread (short the nearby and long the forward contract); and No. 2, the market thinks one-year rates, on average, should be 60 basis points higher. You may not be able to get blood out of stone, but you can indeed get interest out of gold.
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