Gold remains confined to a narrow range as it continues to consolidate the post-election gains seen last week. While there was a brief dip down to 1718.00 early in the session, the yellow metal snapped right back, suggesting there is buying interest below the market.

There was an interesting opinion piece on Reuters over the weekend that I posted earlier, suggesting that the real winner of the election was "inflation." It was a victory for "the forces of cheap money," stated author Matthew Stevenson.

Almost assuredly, "cheap money" is going to figure into any potential resolution to the 'fiscal cliff'. As Stevenson went on to point out, "The magic of inflation, before it turns everything to dust, is that it papers over a number of intractable financial problems." The 'fiscal cliff' certainly qualifies as on of the intractable problems, so the path of least resistance may once again prove to be inflation.

The biggest Treasury rally in 5-months is perhaps the harbinger of this reality. Falling Treasury yields, the price of money, have a tendency to weigh on the dollar. This is particularly true in negative real interest rate environments, where yields are below the rate of inflation. A weaker dollar in turn begets even more inflation.

The Fed has been pretty adamant that they will persist with their zero interest rate policy at least through mid-2015. It may well prove to be longer than that, especially if the solution to the fiscal cliff is another short-term kick of the can, rather than a true solution to the underlying fiscal issues.

We reported yesterday on the huge rebound in Chinese gold imports from Hong Kong in October; +30% to 69.7 tonnes. The following chart from Casey Research pretty clearly illustrates the voracious surge in China's demand for gold in recent years.