Authored by GoldFix 

Good Morning. We watched an interview with Capital Wars’ Michael Howell and his lucid discussion of what Scott Bessent’s “Treasury QE” really means. Embedded in that discussion was his take on Gold as well as Bitcoin. We have included the interview alongside our interpretation of the broader concepts discussed.

Enjoy.

Contents

1. Howell’s Bottom Lines Up Front
2. Treasury QE Adds Fuel, China Remains the Real Driver of Bullion
3. China, Not Bessent, Is Driving Gold
4. GoldFix Comment

Bottom Lines Up Front

The bottom line for us with regard to the net result of the Treasury’s actions is that the Federal Government has hit a turning point where it will allow (really quietly encourage) the growth of the money supply to accelerate while ostensibly maintaining its public neutrality on the matter. With regard to Gold,

we cite Michael as noticing that the price mechanism for Gold globally is increasingly a function of China’s actions. This is something we have asserted was in play for the last three years as the whole monetary gold supply-chain migrated eastward, starting with demand and ending, soon enough, with price discovery.

Treasury QE Adds Fuel, China Remains the Real Driver of Bullion

Michael believes markets have badly misunderstood Scott Bessent’s latest Treasury buyback. The money being spent itself is tiny relative to the size of the market. He puts the additional purchases at roughly $14 billion, compared with about $5.3 trillion in the long end and roughly $35 trillion across the full U.S. Treasury market. In his view, this is not yield-curve control. It is a liquidity operation meant to remove less-liquid, off-the-run securities and keep trading orderly.

“This is not yield curve control.”

What matters, he argues, is the policy signal. Gold and Bitcoin both rallied sharply around the announcement even though the buyback increase was too small to materially move the long end. Investors were reacting to what the move suggested about Washington’s broader policy direction.

The analyst believes the Fed wants to maintain liquidity at the short end while allowing longer-term yields to rise enough to do part of the tightening job. That creates a steeper yield curve and gives Treasury room to issue large amounts of bills and short-dated notes into strong bank demand.

“The real signal is money printing.”

This is where his “Treasury QE” idea comes in. Traditional QE is easy to see: the Fed creates reserves and buys government bonds directly. Michael says the current process works more indirectly through commercial banks. Government spending raises bank deposits, which expands bank liabilities. Banks then need assets to match those deposits, and short-dated Treasury bills are a natural fit. Treasury issues the bills, banks buy them, and bank balance sheets expand along with government borrowing. He describes that as monetary financing through the banking system rather than through the Fed itself.

Essentially, the banks are facilitating the needed debt transfer from Fed balance sheet to the private sector!

“It is being funded by an expansion in bank balance sheets, not from existing savings.”

In this framework, that matters because expanding bank balance sheets ultimately increases the amount of money in the system. That monetary growth eventually shows up somewhere: in consumer prices, asset prices, or the value of the currency. This is why he sees gold and Bitcoin as important hedges against monetary inflation.

The foreign-exchange market can hide part of this process because currencies are relative prices. If only the United States expands money aggressively, the dollar can fall against other currencies. But if Japan, Europe and the U.S. are all doing similar things, exchange rates may not show the full extent of monetary dilution. The analyst therefore sees gold as a cleaner measure of that process because it sits outside the fiat currency system.

“The benchmarks that would reflect it would be precious metals and Bitcoin.”

Michael does not believe Bessent can permanently hold down long-term Treasury yields. In fact, he argues the opposite. U.S. nominal economic growth is very strong, and he believes long-term yields eventually have to catch up. He compares Treasury yields with long-run nominal GDP growth and argues they should broadly move together over time. Heavy bill issuance has helped keep longer-term yields below where that relationship would otherwise suggest they belong, but he does not think that gap can last forever.

“Bond yields have got to rise.”

That creates an unusual setup: strong nominal growth, large fiscal deficits, rising long-term yields, liquid short-term funding markets and expanding bank balance sheets. The analyst believes financial assets have to adjust to that mix, and monetary hedges become more important as governments try to support growth without allowing financial conditions to tighten too aggressively.

Gold and Bitcoin serve similar purposes in his framework, but he sees them differently. Bitcoin is the higher-octane hedge, capable of very large gains during short bursts of liquidity but also much sharper corrections. Gold is slower, more stable and, in his view, the more durable long-term hedge. His point is not that investors can perfectly time either market. It is that assets like gold should be held through the cycle because the fiscal and monetary forces behind them are structural.

“Gold has been doing it for thousands of years.”

The strongest gold call in the interview comes when Michael is asked whether the lows are in for Bitcoin and gold. He separates the two. For gold, his answer is yes. For Bitcoin, he is less certain. The reason is that Bitcoin remains highly sensitive to global financial liquidity, which he believes is still under pressure from a strong real economy absorbing capital. Gold, however, is being driven by a different source: China.