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Gold eased overnight in Asia and London, then extended the decline after St. Louis Federal Reserve Bank President James Bullard said policymakers could begin to slow asset purchases slightly when they meet again next month, depending on the economic data. 

At second blush, though, Bullard's comments are much less hawkish than at first glance. "While I expect inflation to rise during the coming quarters, I want to see evidence of such an increase before endorsing less accommodative policy action by the FOMC," he said. This was a back-pedal from statements he made early Friday. As we predicted, chatter about the next meeting has begun quickly. 

The Fed is realizing that their statements carry almost as much weight as concrete action. Bullard acknowledged as much in his comments today when he said: "The empirical evidence from these two episodes [public airing of probable tapering QE3 in June and reasons for not tapering in September] provides striking confirmation that changes in the expected pace of purchases act just like conventional monetary policy."

It is worth noting that Bullard dissented from continuing QE at the June FOMC meeting, but voted with the majority to continue at the just-passed September meeting.

All markets seem to be reacting to the Fed announcement Wednesday by dropping sharply. Gold and silver are down, as we know. But stocks have given back their Fed-driven gains and the 10-year T-bond has lost 16 basis points this week, dropping off its economy-damaging highs.

We should take more than passing interest in California's rise in unemployment. This will be a front burner issue. The largest state economy affects what happens in the country and often foreshadows trends.

Politics will be a factor in gold trading for the next half dozen sessions or so. If the right wing in the U.S. Congress ties up government funding or fails to raise the debt ceiling, that will put the precious metals in position to become safe havens. 

In a barely-veiled prodding, Fed Chairman Bernanke said that one of the factors driving monetary policy is the clawing and slashing in Washington over fiscal issues. We common folk are left to wonder why the usual mechanisms of debate and compromise are so broken that the Congress, and especially the House, is only able to govern by threat. 

As if to back this up, Edmund Moy, chief strategist with gold-backed IRA provider Morgan Gold, and a former director of the U.S. Mint said, "The Fed is also concerned about the President and Congress being able to work out upcoming fiscal issues (such as) raising the debt ceiling, agreeing on a budget or passing a continuing resolution, so they have a 'wait-and-see' strategy until those issues are resolved one way or another and how the resolutions might impact the economy." 

A key word in Moy's comment is "resolution." The Congress and President must find ways to make more judicious cuts rather than across-the-board cuts. They have to find ways to tax those people who have prospered mightily through the recession. The budget has to be under better control. 

However, there are those in Congress who believe that cutting food aid to children is the way to go and staunch members on the left side of the aisle will not capitulate to that. Isn't it a wonder that we have spent almost $3 trillion on adventurist wars but can't find enough food to feed poor children? 

Finally, the German election is bound to put Angela Merkel into a third consecutive term as chancellor. Merkel's problem is that most likely she will have to form a coalition in the Bundestag (German parliament) with left-leaning Social Democrats. The U.K. Independent framed the probable effect this way:

"If she keeps her [current] coalition with the liberals, she will be unlikely to alter her tough stance towards crisis hit eurozone countries and will be in a better position to back David Cameron in his attempts to curb Brussels power. But with the Social Democrats, Ms. Merkel may be obliged to soften her European austerity policies and take less interest in her Downing Street ally."