Dec 11 a.m. (USAGOLD) -- Gold is building on Wednesday's solid gains, propelled by a sharply lower -- and very toppy looking -- dollar. The yellow metal has penetrated important near term resistance at 829.55/97, shifting attention to the 850.00/863.00 zone next.

The House approved a $14 bln bridge loan for the ailing US auto industry on Wednesday, adding to the sense that the printing presses in Washington are continuing to hum along at a rather disturbing pace. At some point the flood of dollars entering the system will break the back of the recent rally in the greenback. We may already be seeing that happen.

The 'bridge loan to nowhere' -- as it has been dubbed -- still faces stiff opposition in the Senate, including a filibuster threat. There is a legitimate concern that the $14 bln is merely the first installment on a much larger, more comprehensive bailout.

The industry has to come up with a long-term plan for restructuring by the end of Q1-09, but must show 'adequate progress' to that end by 15-Feb or risk having the bridge loan recalled. If we've learned anything about the auto industry over the last 30-years, it's that they are incredibly slow to move.

Clearly the automakers have been poorly run, consistently losing market share to overseas manufacturers. However, does anyone really think a politically appointed 'car czar' in Washington is going to provide better guidance for the industry?

If Washington saddles the industry with a raft of restrictions and mandated changes, but people still don't buy American made cars, any bailout could prove in the end to simply have been a monumental waste of money and time. At that point, do you throw even more money at the industry, or do you let them restructure under bankruptcy protection then and write-off all those bailout dollars?

European car manufacturers are already jumping on the bandwagon, looking for government assistance of their own (see the links below in Market Movers). Can Japan and South Korea be far behind?

With global liquidity increasing at a staggering rate, and interest rates tumbling toward zero (and lower), global currency debasement is a very real concern. While the dollar has benefited in recent months on capital repatriation and a perception that it remains a safe-haven, concerns over the sustainability of the greenback's rally are growing.

We have said for months, that you can't pump trillions into the economy without having a serious debasing impact on the dollar. That truth had been offset by the aforementioned capital flows, but people are beginning to rethink their US dollar exposure in light of the paltry or nonexistent yields on dollar deposits.

Where do you then go to shelter your wealth in an environment where nothing, not even the dollar and US treasuries seem safe anymore? You turn to physical gold, one of the only assets without counterparty risk. An asset that has served as a store of wealth and a global currency for thousands of years. An asset that has survived many a failed currency regime over that time span.

While talk this week has centered on the auto industry bailout and disturbing revelations about politics in Illinois, a much more troubling piece of news was that the Fed is considering issuing debt of its own. This suggests that the Fed is preparing for a protracted financial crisis, one where they will be financing considerably more debt than the $2 trillion plus already on its balance sheet.

Such a move would be absolutely unprecedented. But to be honest, I don't see the benefit. Given the prevailing interest rate environment, I'm curious whom the Fed sees as the market for such debt:

Do you sell it overseas? Who would buy it? What would we have to give in return to induce such purchases?

Do you sell it back to the banks, which would be using Fed/Treasury provided funds to make such purchases? That would be ridiculous, right? Buying dubious assets from banks, collateralizing those assets as debt (again!), and then turning around and selling them back to the banks?

In reality, I think the only interested party for such debt is going to be the Fed itself. This plays into the monetization of debt that Chairman Bernanke has already proposed. The Fed ends up buying their own debt with newly printed dollars.

This of course raises yet another question: If the Fed has the ability to print as many dollars as it deems necessary, why go through the exercise of issuing debt? It's a confusing set of circumstances to be sure. Perhaps that is exactly what they are hoping to accomplish; generate enough confusion to buy time and conceal to some degree the explosion in money supply that is already underway.

Gold has rallied rather significantly this week, up over $70 from last Friday's close, largely as a result of a weak dollar that stems from these heightened concerns. I think dollars are starting to come out of money market funds and treasuries at this point, certainly the 0% yields are not attracting new money like they were, and gold has been a beneficiary.

The breach of resistance at 829.55/97 (24-Nov/25-Nov highs) is encouraging. The 61.8% retracement level of the decline from 930.10 (10-Oct high) to 681.65 (23-Oct low) has been pressured, but remains intact thus far. Penetration of this level would bode well for a challenge of the 850.00/863.00 zone.

Solid chart resistance, 50% retracement of the entire decline from 1032.20 to 681.65, and the 100-day moving average, highlights this area. It is seen as the likely to trigger for a move back above $900.00.

Gold surged above the 20 and 50-day moving averages yesterday. The 20-day is already on the verge of crossing over the 50-day, which would lend considerable credence to the scenario that suggests the corrective low for gold is in place.

Gold Market Movers:

US trade deficit for Oct widened to $57.2 bln, above expectations, versus $56.6 bln in Sep.

Initial jobless claims for the week ended 06-Dec surged 58k to 573k.

SNB cuts 3-month Libor target by 50bp and hints are further cuts.

Bank of Korea slashes rates by 100bp to 3%.

Taiwan announces largest rate cut in 26-years and the fifth in two months. The 75bp cut drops the discount rate to 2%.

Trend of gold as store of wealth 'may start to snowball'

Fed weighs debt sales of its own

Fear triggers gold shortage, drives US treasury yields below zero

Demand for safety sends 3-month Treasury rates below zero

Money-market fund yields may fall to less than zero

For auto industry, bailout considered just a first step

German auto industry seeks government help

Auto woes threaten to wreck Volvo and Saab