GOLD:
GOLD MARKET FUNDAMENTALS: With the big range up move last week, the gold market has served notice to the bear camp, that the threat of too much slowing has been downgraded. With the oil market also rising sharply last week, the inflation threat certainly remains in the background and that also probably served to stimulate investor interest in gold off the late June low. Traders have taken note of the stellar performance of precious metals funds in the first half of 2006 and that could also serve to keep investor interest in the metals strong going forward. In fact in the week end Press the gold market continued to see a number of anecdotal stories about jewelry demand remaining strong, despite high prices. In other words, the bull camp seems to be capable of consistently "spinning" the fundamentals to meet their bullish bias. In fact, overnight the Japanese Press specifically noted purchases from jewelry makers and that serves to cushion the market against the sagging demand fears that were embraced for a large part of May and June. It is possible that the gold market begins to shift its focus toward the pace of US numbers, as the market tries to confirm that the US economy remains strong despite the measures being taken to slow its growth. With the critical US employment report due out on Friday, it is possible that the metals markets will look ahead to that number throughout the week. The trade did suggest that fund buyers seemed to be the main buyers in the Japanese action overnight and with Japanese jewelers also buying gold overnight the gold market has started off the week with a tangible reason to rally. The June 27th Commitment of Traders with Options report showed the Gold Non-Commercial position to be net long 78,676 contracts, with the Non-reportable position also net long 34,980 contracts for a combined spec and fund long position of 113,000 contracts. With the gains made since the COT report was measured ($36 to this morning's CBOT high) the spec long position could become a limiting condition for gold. We have to wonder if today's US auto sales figures will be undermining to gold, as the gold market might need some help from the economy to continue to push prices upward. The August gold seems to have little resistance until the $625 level today but close-in support isn't seen until $616. If the numbers depict even minor positive progression in the US economy, that could be just enough lift to keep last weeks positive tilt in control over prices.

SILVER:
SILVER MARKET FUNDAMENTALS: With the platinum market showing upward progression overnight and international copper market action recently managing a run up in prices, we suspect that the physical demand side players in silver are cheered. In the overnight action the silver market is seeing a very supportive early tilt from the gold market and that might allow the silver market to pick up where it left off last week. The direction of the US equity market will continue to be important to silver, as the silver market hasn't totally discounted the fear of slowing seen for most of June. However, with that Japanese Tankan survey overnight coming in strong, it is clear that the trade has carried the macro economic optimism from last week, forward into the new week. In fact, with the Dow finishing the 1st half of the year with a minimal +.4% gain and the S&P actually losing ground over the first two quarters, the metals would seem to be very attractive to the fund managers. The September silver seems to have a critical pivot point around $11.17 but really solid support might not be seen until the $11.00 level. Initial resistance is seen at $11.31 and the bias in the market to start the week is mostly positive. If the US economic numbers manage to promote a view of ongoing growth and tensions in the Middle East remain high, we suspect that the trade will attempt to push silver prices up. However, the June 27th Commitment of Traders with Options report showed the Silver Non-Commercial position to be net long 16,102 contracts, with the Non-reportable position also net long 19,792 contracts for a combined spec and fund long position of 35,000 contracts. On the other hand, with the silver market up $1.13 cents since the COT report mark off date, the COT positioning certainly understates the spec and fund long positioning into the opening this morning. However, as long as US economic numbers are generally positive, we suspect that September silver will be able to respect the prior close of $10.92.

METALS TECHNICAL OUTLOOK 7/3/2006

COMEX SILVER (SEP) 07/05/2006: Momentum studies are rising from mid-range, which could accelerate a move higher if resistance levels are penetrated. The cross over and close above the 18-day moving average indicates the intermediate-term trend has turned up. The gap upmove on the day session chart is a bullish indicator for trend. There could be more upside follow through since the market closed above the 2nd swing resistance. The near-term upside objective is at 1139.3. The next area of resistance is around 1116.5 and 1139.3, while 1st support hits today at 1067.5 and below there at 1041.3.

COMEX GOLD (AUG) 07/05/2006: Momentum studies are rising from mid-range, which could accelerate a move higher if resistance levels are penetrated. The market now above the 18-day moving average suggests the intermediate-term trend has turned up. The gap upmove on the day session chart is a bullish indicator for trend. The market has a bullish tilt coming into today's trade with the close above the 2nd swing resistance. The next upside target is 629.0. The next area of resistance is around 624.0 and 629.0, while 1st support hits today at 608.0 and below there at 597.0.