Dec 18 a.m. (USAGOLD) -- Gold has retreated from the most recent attempt at new 9-week highs, weighed by continued losses in oil. Market action remains confined to yesterday's range thus far, but this leaves the 900.00 level protected for the time being.

OPECs announcement on Wednesday that they would cut oil production by 2.2 bln barrels per day -- the largest cut ever -- was designed to shock the market and bolster energy prices. However, in light of the Fed's unprecedented action on Tuesday, and an expectation that we are looking at a protracted economic contraction, the market is apparently anticipating additional demand kill for energy, driving oil to new 4 1/2 year lows.

The Fed slashed the target for Fed funds to 0.25% to 0%, essentially matching what had already been established as the effective funds rate. The FOMC also lowered the discount rate to 0.5% and set the rate that they will pay on reserve balances at 0.25%. The vote was unanimous.

The Committee stated they anticipate "that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time." It is now likely that this low target rate will prevail into H2-09.

The policy statement confirmed that the Fed planned to pullout all the stops to "support the functioning of financial markets and stimulate the economy." Though the actual terms weren't employed in the statement; 'quantitative easing' is being, and will be, employed while the 'monetization of debt' is likely.

From the FOMC Policy Statement: "As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities."

The Fed also stated that early in 2009 it planned to implement the Term Asset-Backed Securities Loan Facility to "facilitate the extension of credit to households and small businesses." Add a likely auto industry bailout and a fiscal stimulus package -- that may be as high as $1 trillion -- to all this and you have a country absolutely awash in newly printed dollars.

In over 20-years involved in these markets as a trader and analyst, I have never seen anything like this. The magnitude of this policy statement absolutely floored me. The implications strike me as all but immeasurable.

Mike Kosares, the president of USAGOLD - Centennial Precious Metals identified Tuesday's Fed action as a "watershed moment" for the gold market. In a forum post that also went out to our clients via email he suggested that the FOMC meeting, "may have been the most gold significant event since Nixon's first devaluation of the dollar in 1971."

Those of you who know Mike know that he doesn't make such statements lightly. His opinions are always carefully considered. The Fed's actions are a big deal.

What's troubling is that I don't think the Fed -- nor any other central bank for that matter -- have any idea what they are unleashing. And so, into the great unknown we go. Only history will tell whether the chosen course was in fact the lesser of two evils.

Several quick take-aways from conversations around the office:

As a result of these unprecedented actions, it is clear that the Fed is extremely worried about a complete collapse of the economy.

Disincentivizing saving in favor of easy credit and living beyond ones means is to a large degree the root cause of this entire crisis. How does perpetuating this policy -- and ratcheting it up to an even higher level -- make any sense? Fred Thompson commented on this topic and he is both sarcastically funny and spot-on scary all at the same time.

The Fed is now fully committed to preventing deflation and is screaming, "Bring on the hyperinflation!"

The dollar has plunged over the past week and the long-term downtrend appears to be re-exerting itself.

The Fed certainly didn't get the stock market rally they were probably anticipating. Why doesn't the stock market like 0% interest? Because of what it portends.

Look for market volatility to increase substantially over the next several quarters as all this liquidity sloshes about.

Gold is going to continue to be viewed as a safe-haven, a hedge against ongoing systemic risks and a hedge against the likely wave of inflation in our future. Given the rather strong indications that the financial crisis is far from being over, it is unlikely that even with higher gold prices, the absence of physical supply in the market is going to be corrected anytime soon.

Gold Market Movers:

Dollar falls sharply in wake of Fed move

Gold prices advance as dollar plunges

Fed unleashes greatest bubble of all

Fed loans guided by raters grading subprime debt AAA

BoE's Bean says 0% interest rates are possible in UK.