A breach of resistance at 836.55 would likely encourage a challenge of the more important 845.50/850.00 level, which has proven to be a significant barrier this year, first on the way up and then on the way down as well. A short-term push back above $850 would suggest potential back toward $900.

Relations between the US and Russia were already strained as a result of the Georgian conflict. News that the US signed a missile shield deal with Poland resulted in a strong objection from Russia. Russia also hinted that its missiles would be pointed at Ukraine if they join NATO.

These tensions have been supportive to gold as well as oil. Brent spot crude recaptured the 118.00 level today.

The dollar came under renewed pressure on increased credit crisis concerns. Secret talks between Lehman and Chinese or Korean parties have reportedly ended without success. Meanwhile, shares of Fannie Mae and Freddie Mac remain on the defensive amid worries that a bailout may be in the offing.

If there are indeed more bailouts in the cards, we can expect further expansion of the money supply. That will put additional pressure on the dollar.

You may recall that the US Treasury was allowed to extend lines of credit to Fannie and Freddie last month when that new twist in the credit crisis initially flared. They are even allowed to do outright purchases of shares. After several weeks of assurances that the new facility would not have to be implemented, confidence seems to be waning.

Systemic risks to the US and global banking system are still considerable, and potentially worsening. There is considerable risk that we could see additional bank failures and gold is an excellent hedge against the eventuality.

The euro got a boost from better than expected PMI data, putting the dollar under additional pressure. The EUR-USD rate traded above the 1.4800 level for the first time in a week. These gains bode well for an upside extension into the important 1.4922/79 zone.

The dollar index appears poised to move back below 76.00. If the long-term downtrend in the dollar starts to re-exert itself, inflation is going to remain a major problem. As evidence of this, PPI for July surged 1.2% and the core was up 0.7%.

I read an interesting bit of history about Xi'an today: In the year 190, a warlord named Dong Zhuo moved his court form Luoyang to the more secure city of Xi'an due to a rebellion.

For reasons that aren't entirely clear, Dong Zhuo ordered that statues and bells be melted down and cast into coins. The coins flooded the market and resulted in serious inflation, to the point that the money was soon worthless. Dong Zhuo's reckless behavior made him a prime candidate for assassination. Ultimately it was his own adopted son that did him in.

I believe the old adage goes: Those who forget the lessons of history are doomed to repeat them.