-- Posted Monday, 19 June 2006 | Digg This Article

METALS: OVERNIGHT CHANGE to 4:00 AM: London Gold Fix $581.50 n.a. LME COPPER STKS 102,200 ml tns -2,500 tons GOLD stks 8.031 ml oz, -585 OZ COMEX SILVER stks 104.9 ml oz, -842,950 oz

OVERNIGHT ACTION: Generally lower gold prices mostly off a stronger US Dollar.

OUTSIDE MARKET DEVELOPMENTS: With the exception of a minimally higher equity market early this morning, the gold market seems to be presented with a series of negative outside market forces at the start of the new week. A moderate rise in the Dollar overnight has apparently put the metals markets under some light pressure and with oil prices also under light pressure we suspect that gold and silver will see a weak start to the week. We doubt that the US economic report slate will impact the metals significantly today, but if there is an impact it is likely to be slightly supportive as housing sector news is generally expected to depict weakness and that could prompt the Dollar to relinquish its early strength. It also seems like the threat of another US rate hike and talk of Chinese tightening is set to hang over the metals in the coming sessions.

GOLD MARKET FUNDAMENTALS: While the gold market managed to recover some footing with last week's bounce, the threat of broad based commodity fund liquidation still seems to be hanging over the market. While the Press is rife with Federal Reserve member concern for inflation, the precious metals markets are concerned that aggressively inflation battling could result in over tightening and a more serious slow down in the US and world economy. There also seems to be concern that the world economy has already slowed or will be slowing soon and therefore stellar physical demand might be mitigated in a host of commodities. Furthermore, while inflationary fears are generally supportive for gold, that view is being countervailed by the threat of perpetually higher interest rates, a strong Dollar and sagging economics. Even the geopolitical front appears to be undermining gold, as Iran over the weekend suggested that they would offer up some changes to the incentives offered by the EU. However, Iran also indicated a desire to clarify the classification of enrichment and that could be the make or break point of the entire negotiation. From a technical perspective, the June 13th Commitment of Traders with Options report showed the Gold Non-Commercial position to be net long 94,869 contracts, with the Non-reportable position net long 38,677 contracts and that puts the net spec long position at 133,000 contracts or moderately longer than many expected. In fact, with the gold market looking to open $10 above the level where the COT report was measured, the market is probably back up to 140,000. It should also be noted that the market has begun to talk about the next central bank gold sales agreement, which is expected to allow for the sale of 209 tons of gold in the coming quarter. The second gold sales agreement runs to September 2009 and is expected to see France, the Netherlands and the ECB as the biggest sellers and that might add to the current weak posture in gold prices. Traders should remain defensive with the failure to hold above $570.5 overnight a potential signal of a slide back toward the $557 level. Those that hold longs, or want to be long gold will probably have to risk fresh longs to at least $545 basis the August contract. In fact, talk of central bank gold sales and concerns that the US Fed might be in the process of over tightening, one should not be surprised to see August gold prices slide toward critical support on the charts of $550 this week.

SILVER MARKET FUNDAMENTALS: The silver market is in a similar position as gold, in that the bear camp seems to retain an edge off an ongoing threat of broad based commodity liquidation. The bear camp seems to retain that edge because of the looming rate hike fear and because of less than stellar leadership from the copper market Supporting silver is the fact that exchange stocks continue to fall and the talk that ETF ownership of physical silver continues to hold together in the face of adversity. It is also a positive that futures spec long positioning in silver held together surprisingly well despite the horrific break in prices in the June 6th to June 13th time frame. However, if the macro economic tilt remains bearish and the gold market is set to drag the metals complex down, it is unlikely that silver will be able to avoid outside selling pressures. From a fundamental perspective, it seems that the market is getting only limited interest from the supply-tightening situation and if the silver market is generally going to fret over the Fed over tightening, the September silver could continue to gyrate below the psychological level of $10.00 on the charts. With the June 13th Commitment of Traders with Options report showing the Silver Non-Commercial position to be net long 22,321 contracts, and the Non-reportable position also net long 21,994 contracts, the silver market remains moderately spec long. While the COT report produced a larger spec and fund long than we would have expected, it should be noted that despite a massive break in the June 6th through June 13th time frame, the spec and fund long position actually managed to rise by 800 contracts and that might speak to the dedication or resolve of the bull camp. While we doubt that silver is set to avoid early pressure today, we are inclined to think that silver will be able to respect the recent low support of $9.54 basis the September contract. However, under a patently negative macro economic outlook (one that features a significant US slowdown) one can't rule out an even steeper correction to even numbers down at $9.00. As we suggested last week, the direction of the silver market might be dictated by the overall direction of the US equity market.

Commitment of Traders with Options - Metals - 1/31/2006

                 NON-COMMERCIAL        COMMERCIAL    NON-REPORTABLE

               NET POS   NET CH  NET POS   NET CH  NET POS   NET CH

Copper           1,015   -1,661   -5,890     -368    4,876    2,031

Gold           140,834   -1,003 -173,802    3,355   32,968   -2,352

Palladium        6,431    1,141   -9,959   -1,494    3,528      353

Platinum         6,658      285   -8,114     -484    1,456      199

Silver          53,505   -2,861  -75,770    2,560   22,265      301

METALS TECHNICAL OUTLOOK 6/19/2006

COMEX SILVER (JUL) 06/19/2006: The daily stochastics gave a bullish indicator with a crossover up. Daily stochastics are showing positive momentum from oversold levels, which should reinforce a move higher if near term resistance is taken out. The market's close below the 9-day moving average is an indication the short-term trend remains negative. The daily closing price reversal up on the daily chart is somewhat positive. With the close over the 1st swing resistance number, the market is in a moderately positive position. The next upside objective is 1043.8. The next area of resistance is around 1032.5 and 1043.8, while 1st support hits today at 993.5 and below that 965.8.

-- Posted Monday, 19 June 2006 | Digg This Article

***This report includes information from sources believed to be reliable and accurate as of the date of this publication, but no independent verification has been made and we do not guarantee its accuracy or completeness. Opinions expressed are subject to change without notice. This report should not be construed as a request to engage in any transaction involving the purchase or sale of a futures contract and/or commodity option thereon. The risk of loss in trading futures contracts or commodity options can be substantial, and investors should carefully consider the inherent risks of such an investment in light of their financial condition. Any reproduction or retransmission of this report without the express written consent of Hartfield Management, Inc. is strictly prohibited.

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