Gold popped early Thursday morning back above $1660 per ounce, a level it could not hold after yesterday attempting to take out the cap on the hourly chart at $1666.45 per ounce in the futures market — a failed breakout at that level Wednesday morning set up weakness all through Asian and European trading.  While gold cannot still seem to muster a close above that level it did hold onto $1664 for most of Thursday until the equity market close.  With hope (for who is the real question?) fading on a budget resolution that will avoid the so-called fiscal cliff that is the stuff of Keynesian nightmares which at this point will do nothing but help the re-election campaigns of Democrats around the nation the U.S. Dollar saw a lot of buying as cash is becoming king in anticipation of tighter market liquidity in 2013.

Similar to gold, Silver regained the $30 level again and has now tested $29.60 three times in the past week.  One has to wonder just when this operation by the Fed and its proxies to break down both gold and silver will end.  It’s obvious that both markets are being leaned on during these times of extreme market stress to push them lower.  I would continue to watch total Fed credit as well as the EURUSD to tell you what the real situation is with inflation and when/how gold and silver will finally respond intuitively to mounting inflation expectations.  The signals are there but the markets can be held in check while dislocations due to government policy play themselves out.