What can be deduced about the dragon from the steam and smoke coming out from the Front Gate?
"Out of it the waters of the Running River sprang; and out of it too there came a steam and a dark smoke" (Chapter 11).
One of the most obvious conclusions to be drawn from the steam and smoke coming out of the front gate in The Hobbit is that the dragon is still very much alive and still poses a formidable threat to the dwarves. Bilbo actually draws this conclusion aloud to the dwarves, but some, including Balin, hope the dragon may have died. This observation is important in the novel, because it furthers the building conflict that the dwarves will eventually have to face Smaug in some sort of show down if they hope to reclaim the Lonely Mountain for themselves.