GOLD:
GOLD MARKET FUNDAMENTALS: In addition to South African suggestions that ETF interest has continued to provide gold buyers to that market, the World Gold Council has also suggested that gold sales in the second quarter were 15% higher than the tally seen in the 1st quarter. The World Gold Council indicated that the ongoing pattern of strong sales to consumers produced gold sales within the United Arab Emirates alone produced sales of $2.1 billion and that compares to only $572 million in the 1st quarter. In other words, there continues to be strong pockets of demand, even in the face of significant investment selling and sharp declines in flat prices. One might conclude that historically high revenues to oil producers continues to prompt some gold buying and that isn't surprising considering that OPEC is running at full capacity and the basket price of crude is still sitting at a rather lofty $62.64 per barrel. On the other hand, the metals don't appear to be set to get out from under the liquidation threat, as a number of headlines overnight are trumpeting the idea that sagging inflation fears, the threat of rising rates and less than robust oil prices are periodically justification for speculative selling in the metals. In the mean time, the trade has suggested that August gold has a critical psychological support level on the charts of $564.5, but with the last 5 days trading range a rather significant $42 per ounce in width, it is clear that a wide back and forth trade has become common place. While the technical condition in gold is being leveled and some traders are taking some confidence from the ability to coil around the $575 level, one has to leave the near term edge with the bear camp. However, as can be seen from the overnight news flow, there continues to be a steady flow of favorable long term demand stories serving to underpin prices, but the current slack macro economic outlook probably continues to rob the market of a consistent trend. In fact, some might argue that the wait for the next US Fed move has effectively put a lid over prices. In our opinion, the Fed is limiting but the lack of positive action in the equity market is the real issue favoring the bear camp. We can't rule out a weak rise to $583 but we would give just a little higher odds of a temporary slide back down to $563.9.

SILVER:
SILVER MARKET FUNDAMENTALS: The headline flow overnight fails to provide the silver market with as much fundamental support as was seen in the gold market. We also note that stocks levels managed a slight increase overnight and that seems to dampen the hope that the mainstream media will begin to play up a tightening of silver stocks. Holdings of silver in the IShares trust rose back above 71 million ounces yesterday, with the net asset tally coming in at $706 million yesterday. Therefore, the supply news is somewhat mixed for silver into the opening this morning. From the demand front, we suspect that silver derives some benefit from the flow of favorable gold ETF demand talk and from the fact that both copper and platinum prices are showing moderate gains in the early going this morning. Without sounding like a broken record, the silver market needs much more consistently positive equity market action to really effectively throw off the periodic liquidation waves being presented to the market. While the silver market is forging a consolidation pattern around the $10.00 level, we really can't rule out a quick return to levels just above the $9.50 level on the charts. So far, volume and open interest patterns haven't suggested that the silver market has made a major low and for us to become consistently upbeat toward silver prices, we need to see an economic upgrade. Currently an economic upgrade seems impossible, with the Fed looming ahead and oil prices still thought to be holding back growth. Therefore, pushed into the market, we would prefer to sell a rally to $10.36 than to buy a break to $9.68.

METALS TECHNICAL OUTLOOK 6/20/2006

COMEX SILVER (JUL) 06/20/2006: Daily momentum studies are on the rise from low levels and should accelerate a move higher on a push through the 1st swing resistance. The market's short-term trend is negative as the close remains below the 9-day moving average. The market's close below the pivot swing number is a mildly negative setup. The next upside objective is 1013.0. With a reading under 30, the 9-day RSI is approaching oversold levels. The next area of resistance is around 1006.0 and 1013.0, while 1st support hits today at 988.1 and below there at 977.1.

COMEX GOLD (AUG) 06/20/2006: Daily stochastics are showing positive momentum from oversold levels, which should reinforce a move higher if near term resistance is taken out. A negative signal for trend short-term was given on a close under the 9-bar moving average. The market setup is somewhat negative with the close under the 1st swing support. The near-term upside objective is at 580.9. The 9-day RSI under 30 indicates the market is approaching oversold levels. The next area of resistance is around 576.0 and 580.9, while 1st support hits today at 568.7 and below there at 566.2.