GOLD:
GOLD MARKET FUNDAMENTALS: An Australian Bank thinks that the gold market will rally under a 25 basis point US rate hike this afternoon but the statement (forward guidance) might be the main factor driving prices over the coming weeks. It does seem like the market has accepted a 25 basis point hike, but the harshness of the statement and the number of future hikes anticipated is still very important to the upcoming gold trend. It is a positive that international equity markets managed something more than a simple bounce overnight, as that could put the metals in a position to weather an overly hawkish Fed Statement. Unfortunately the supply news overnight was somewhat bearish, with China indicating a January through April gold output increase of 13% on 68 tons of production. However, there continues to be favorable gold merger and buyout dialogue flowing from South Africa and as suggested before, an Australian Bank thinks that the gold market will rally after the 25 basis point hike today. In fact, the Australia Bank raised its 2006 gold targeting to $633 an ounce and suggested that prices above $1,000 an ounce were possible in 2007 because of entrenched gold investing patterns. Another increase in Russian gold and currency reserves overnight is a slight positive, as the Russians are vying to become the worlds 4th largest gold holder. The pattern on the charts isn't exactly encouraging this week and even though the Press is generally upbeat toward gold's prospects of getting around the FOMC action today, one has to fear a temporary bump in the road for the bull camp. Certainly the market will attempt to rise sharply if the Fed hikes and leaves the statement benign. However, we get the sense that the August gold will be able to respect consolidation support at $575 unless of course, the Fed hikes rates by 50 basis points. Seeing the August gold get through the session today with prices holding above close-in support of $579 could set the stage for a stronger finish to the week but for fresh long plays we would suggest that players hold out for a dip to $569 as the Fed Chairman might be gunning for some inflation fighting respect today.

SILVER:
SILVER MARKET FUNDAMENTALS: With trading in equity based silver tools holding at low levels and silver exchange stocks mounting a slight rise this week, some of the bullish buzz toward silver is tempered. The silver market is aware of some partially negative base metals demand projections from China this week, but so far the silver market has paid more attention to the action in gold than the action in copper and other somewhat related metals markets. However, in the event that the Fed were to raise rates by 50 basis points today, that should temporarily undermine silver For the time being, the silver market will be more of a follower market, than a primary market. We would be surprised to see silver get beyond the action today without a probe down toward critical support of $10.06 basis the September contract. In the event that the Fed goes 50 basis points, we would expect silver to test even lower levels down at $9.89 and maybe even $9.68 if the Fed really goes out of its way in battling inflation psychology. On the other hand, seeing the market respect $10.15 throughout the session, could turn the tables on the bear camp and set the stage for a rise back to $10.75 level.

METALS TECHNICAL OUTLOOK 6/29/2006

COMEX SILVER (JUL) 06/29/2006: The stochastics indicators are rising from oversold levels, which is bullish and should support higher prices. The market's short-term trend is negative as the close remains below the 9-day moving average. The market tilt is slightly negative with the close under the pivot. The near-term upside target is at 1042.5. The next area of resistance is around 1028.0 and 1042.5, while 1st support hits today at 1003.1 and below there at 992.5.

COMEX GOLD (AUG) 06/29/2006: Rising from oversold levels, daily momentum studies would support higher prices, especially on a close above resistance. The market's close below the 9-day moving average is an indication the short-term trend remains negative. It is a slightly negative indicator that the close was under the swing pivot. The next upside target is 592.9. The next area of resistance is around 586.1 and 592.9, while 1st support hits today at 575.9 and below there at 572.4.