Gold has retreated from recent tests of the upside, leaving the highs from the past couple of weeks at 1737.64/1738.35 intact. The pullack comes amid rumors of an Israeli/Hamas cease fire, which has caused oil to retrace all of yesterday's gains.

While the ebb and flow of tensions in the Middle East may continue to hold short-term sway over markets, the underlying fundamentals for gold remains constructive. The US continues to edge closer to the fiscal cliff and its debt ceiling and Europe remains a mess. Meanwhile the central banks of the industrialized world continue to ply their uber-accommodative monetary policies, even as the central banks in the developing world buy gold as a hedge against their exposure to the debasing currencies of the industrialized nations.

Fed chairman Ben Bernanke said in a speech today that the US will continue to face many headwinds to growth, but the fiscal cliff is the most immediate danger. He warned that the Fed doesn't have the tools to fully offset a drop over the fiscal cliff, which would likely push the US back into recession. He acknowledged that "the federal budget is on an unsustainable path," yet urged Congress to raise the debt ceiling in order to "avoid any possibility of a catastrophic default on the nation's Treasury securities and other obligations."

Treasury Secretary Geithner said in a recent Bloomberg interview that the debt ceiling should simply be eliminated. Given that the US has never failed to reach — and ultimately exceed — every debt ceiling ever established, a debt ceiling of infinity would be troubling beyond words.

As noted in yesterday's report, the damage may have already been done. A Wall Street Journal survey released yesterday shows that planned spending by major corporations has fallen off a cliff. This reality was also reflected in the October durable goods miss and soft capacity utilization.