GOLD:
GOLD MARKET FUNDAMENTALS: With the front Page of the Wall Street Journal carrying stories about slowing growth due to even higher rates and discussions of the potential for over tightening, the metals markets could see the macro economic outlook shift into the favor of the bear camp. However, while the macro economic and Foreign exchange related impact on gold might be partially defeating this morning, the geopolitical uncertainty around the globe seems to be taking control. In addition to 5-6 missiles being fired by North Korea, the market also sees the potential for sanctions again Iran if they fail to halt enrichment by July 12th. Tempering the threat of Iranian sanctions, are suggestions from Russia that threatening Iran with sanctions is counterproductive. In another supportive development over the last 24 hours, the fighting between Israel and the Palestinians has remained intense and with the Arab League making a $50 million transfer to the Palestinians, it is clear that the Palestinians will have the money to continue the fight. Historically, the gold market has performed a little more consistently off a solid economic outlook, as opposed to pure flight to quality inspired gains. Looking back to the June 27th Commitment of Traders with Options report the Gold Non-Commercial position was pegged at a net long of 78,676 contracts, with the Non-reportable position also net long 34,980 contracts and that produces a combined spec and fund long position of 113,000 contracts. Considering the gains made since the COT report was measured, the spec long position has probably become a bit of a limiting condition for gold. As mentioned before, we understand the bullish reaction to the North Korean condition and we wouldn't be surprised to see the Iran situation provide a lift in the coming sessions, but rising concern of economic slowing in the headlines of the Wall Street Journal this morning should not be forgotten. In fact, if the August contract fails to hold above $626 into the close today that could set up a mild corrective posture. On the other hand, if the macro economic outlook holds together, it is entirely possible to see gold establish a $625 to $650 trading range.

SILVER:
SILVER MARKET FUNDAMENTALS: At least in the early action today, the silver market is benefiting from the strong gains in gold and because of geopolitical anxiety in the headlines this morning. However, the silver market could easily focus in on the sagging macro economic outlook, instead of the geopolitical flight to quality buying focus. In the overnight action, the silver market has failed to rise above the high established on Monday and that could be taken as a sign of sagging momentum, especially in the wake of the strong gold bid this morning. In other words, the price action in silver this morning suggests that traders are indeed a little undermined by the slower growth predictions and the negative price action in the equity markets. On the other hand, the stellar gains off the June lows and the strength in a number of physical commodity markets could reduce the incidence of concentrated commodity fund selling seen on occasion in the months of May and June. However, with the Press trumpeting the idea of slower growth, the US Factory Orders report this morning might carry significant importance for the silver trade. With the June 27th Commitment of Traders with Options report showing the Silver Non-Commercial position to be net long 16,102 contracts and the Non-reportable position also net long 19,792 contracts, the combined spec and fund long position in silver is a mostly balanced 35,000 contracts. However, with the silver market up roughly $1.13 since the COT report mark off date, the COT positioning certainly understates the spec and fund long positioning into the opening this morning. Despite the gap up move in New York silver overnight, we are a little concerned about a loss of positive momentum, as Chicago silver hasn't been able to get above the Monday highs. With any deterioration in the macro economic outlook, the September silver could slump back to $11.00 support. On the other hand, there is a chance that the silver is set to establish a new trading range of $11.00 to $12.00 in the September contract.

METALS TECHNICAL OUTLOOK 7/5/2006

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.