With a technical double bottom pattern as a launchpad, gold continues to move solidly higher while global stock markets get smashed. What comes next for these key markets and what are the main factors at play?

Double click to enlarge this daily gold chart.

What began innocently as a bullish non-confirmation between gold-USD and yuan-USD is now a powerful rally fuelled by positive action in the love trade, the inflation trade, and the fear trade… all at the same time!

Institutional money managers are becoming concerned that the US government’s obscene debt growth is violently accelerating as the Fed’s quantitative easing and rate normalization programs are already putting intense pressure on bond market yields.

In turn, that puts intense pressure on the stock market… a market that is already at a very point late in the business cycle. Corporate earnings growth has peaked and inflationary pressures are rising.

Hedge funds are feeling pressure to liquidate their short positions on the COMEX and the “smart money” commercial traders went heavily net long gold just before the US stock market got smashed.

Like most governments around the world, the US government has almost always had a maniacal obsession with spending money that it doesn’t have. That money is either borrowed or extorted via “income taxation” from overburdened citizens. It’s quickly spent on supposedly grand “people helper” programs.

This disgusting obsession is now putting enormous pressure on yields in the bond market. 

This rancid “cake” is being iced by disturbing events taking place in Saudi Arabia. Institutional investors are becoming nervous that Trump may try to have key members of the House of Saud arrested for murder in the Khashoggi incident, and the House of Saud would respond by cutting oil production.

The US head of the treasury brags that he doesn’t care if the Chinese government sells US government bonds. He doesn’t care because the treasury doesn’t buy those bonds as an investor.