GOLD:
GOLD MARKET FUNDAMENTALS: While the gold market did manage a pattern of higher lows and higher highs last week, the weak US Non Farm payroll reading and the prospect of slowing in the US economy is not to be discounted. In fact, over the last two years, the most consistent focus of the gold market has been on the direction of the economy, with periodic detours toward inflation and currency related themes. Given that the US numbers from last Friday hint at slowing, the gold market will probably begin to focus keenly on the direction of the equity market, as an early leading indicator on the direction of the economy. Last week the equity market started the holiday week out assuming that the outlook for the economy had been unfairly downgraded, but by the end of the week, the optimistic view on the economy was almost totally reversed. Therefore, the gold market will be watching the stock market for clarification on just how much slowing will be seen ahead. On the other hand, the idea that the US Fed might go slower with planned rate hikes, is a direct undermine of the Dollar and that could provide some measure of support under gold in the face of the recent macro economic undermine. With the July 3rd Commitment of Traders with Options report showing the Gold Non-Commercial position to be net long 86,290 contracts and the Non-reportable position also net long 35,184 contracts, the combined spec and fund long position is 121,000 contracts and that position is more than likely understated due to the gains made since the report was measured. In short, the gold market is technically and fundamentally vulnerable in the short term. In fact, an early failure below $625 today could hint at a return to the gap area down at $619.5 to $618. At this point, we don't see the market coming unglued on the downside but that is why traders might want to keep a close watch on the stock market.

SILVER:
SILVER MARKET FUNDAMENTALS: While stocks managed to tighten slightly and the activity in ETF instruments has rebounded slightly, the silver market is lacking a conclusively bullish investment environment. In a more positive note, copper prices are higher this morning and that might provide the silver market with an initial minor offset to the lower Gold/higher Dollar action. Unfortunately the silver contract saw a slight tailing off of volume and open interest on the rally from June 30th to the July 6th high and that is usually considered a negative technical pattern. On the other hand, the decline in volume and open interest could just have been the result of holiday thinned trading activity. In the end, the silver market seems to need optimism toward the US economy, as the inflation element has been played down and the flight to quality element has been only a fleeting consideration by many in the trade for at least two months. Many traders are pointing to critical psychological chart support of $11.00 for this morning's action and below that the next logical support zone might be the mid June consolidation highs of $10.72. A vulnerable status exists in the silver market to start the new week. With the macro economic view downgraded, we suspect that investment interest in silver will temporarily wane. Like the gold market, the silver market is moderately overbought according to the COT report. In fact, the July 3rd Commitment of Traders with Options report showed the Silver Non-Commercial position to be net long 19,804 contracts, with the Non-reportable position net long 19,438 contracts for a combined spec and fund long of 39,000 contracts. With the gains made since the COT report was measured, the net spec long position is more than likely under stated. While we think that the September contract will manage to temporarily hold at the $11.00 level, the odds look good for a retest of $10.70.

METALS TECHNICAL OUTLOOK 7/10/2006

COMEX SILVER (SEP) 07/10/2006: Momentum studies are trending higher but have entered overbought levels. A positive signal for trend short-term was given on a close over the 9-bar moving average. The close below the 1st swing support could weigh on the market. The near-term upside objective is at 1173.0. The next area of resistance is around 1155.0 and 1173.0, while 1st support hits today at 1126.1 and below there at 1115.1.

COMEX GOLD (AUG) 07/10/2006: Momentum studies are trending higher but have entered overbought levels. The market's short-term trend is positive on the close above the 9-day moving average. The market has a slightly positive tilt with the close over the swing pivot. The near-term upside target is at 644.6. The next area of resistance is around 639.8 and 644.6, while 1st support hits today at 629.8 and below there at 624.7.