What is truly behind gold's breakout?

In this article I look at global supply and demand and pinpoint lack of supply

On Friday, gold suddenly rose to $2080. The proximate reason was remarks by Fed Governor Christopher Waller that in future the Fed is likely to purchase Treasury bills rather than term bonds. This is in line with the Treasury’s statement that it is prepared to breach its 20% maximum of debt liabilities held in T-bills.

This is a clear signal that US Treasury debt average maturity will be shortened. The wisdom, or lack of it in this move need not detain us here. But the market appeared to think that the lower supply implied of debt along the yield curve would lead to lower bond yields (the 10-year yield dropped from 4.29% to 4.18% on the release of Waller’s speech.

That gold should rise over $40 on this news seems an over-reaction. And frankly, we have no idea whether it will follow through next week — only time will tell.

But the underlying technical position suggests that the merest excuse was needed for gold to resume its bullish trend. In this article I examine the global supply and demand position for bullion, which explains why even now demand is exceeding mine and scrap supply by a large margin.