GOLD:
GOLD MARKET FUNDAMENTALS: With the Shanghai Press suggesting that buyers in China are stepping up to the market on price weakness, the bull camp is apparently emboldened. With China posting a January through May gold output increase of 12% over the prior year, the gold market could have come under some early pressure today, but instead the market seems to want to focus on the demand side of the supply and demand equation. Chinese gold output was actually 88.8 metric tons in the 5 month period, but the total yearly expansion in gold production was only 10% which is somewhat less defeating than the 12% five month rise. However, with Press reports overnight labeling the recent buying as investor buying that would certainly fit with the idea that some players are buying gold ahead of the Wednesday US Trade readings. With China already posting another record trade surplus reading of +$14.5 billion in June, and exports climbing by 23% in the country from a year ago levels, it is likely that the US Trade Deficit report on Wednesday will indeed expand enough to rekindle at least 1 of the US twin debt issue concerns. With some of the early corporate earnings reports coming in soft and the markets seeing another increase in US Consumer Credit yesterday afternoon, there is certainly justification for some increased flight to quality buying in gold. Some traders this morning are suggesting that close-in support is seen at $621.7 and then again down at $616. While the market has been able to hold above the recent gap area and has apparently managed to play down the recent slowing growth mentality, it is probably important to keep the financial uncertainty high, with a big trade deficit on Wednesday morning and at the same time the gold market might also need to see inflationary expectations remain high with decent performance in the energy complex and other physical commodities like the grain markets. With the grain markets sensing a possible tightening of supplies off adverse weather, it is certainly possible that the grain markets manage to lend some support to gold prices. However, countervailing the current positives and in the process separating the current gold market from the pre-May high "gold market", is the fact that the markets aren't seeing persistent simultaneous gains in oil and equity prices. It is also clear that the current gold market isn't ultimately as confident in future growth patterns as the trade might have been prior to the May high. A minimal upward bias is ahead, but one can't rule out a return to recent consolidation support of $619.5.

SILVER:
SILVER MARKET FUNDAMENTALS: With all of the precious metals markets and the copper market managing early gains today, the silver market would seem to have a mostly positive early tilt today. However, with the equity market choppy and a little weak this morning, the silver market might not be in as positive of a position as it was at times last week. Certainly some of the favorable gold demand stories are serving to provide a lift to silver this morning, but we suspect that the physical demand benefit is a little less important to the silver trade. Many traders think that silver will simply lag behind gold in the coming sessions, as part of the gains and investor interest in the gold market are being derived off financial considerations and silver can sometimes track copper market fundamentals (physical demand considerations) closer than gold market fundamentals. However, it should also be noted that silver stocks have continued to decline and silver demand still seems to be capable of getting the upper hand on supply in the silver market. In conclusion, the bull camp seems to maintain a slight edge and at the same time the market seems to have displayed an ability to reject sub $11.00 trade action in the September contract. While the market seems to have rejected the sub $11.00 trade over the last 24 hours and the market is also getting favorable leadership from gold and copper this morning, the bull camp would probably feel a little more comfortable with a much more optimistic equity market outlook and perhaps with better overall economic readings from Japan and the US. Close-in support is seen at $11.05 and then again at $11.00. A quasi upside breakout in September silver takes place today with a minor rise above $11.27.

METALS TECHNICAL OUTLOOK 7/11/2006

COMEX SILVER (SEP) 07/11/2006: Daily stochastics have risen into overbought territory which will tend to support reversal action if it occurs. A positive signal for trend short-term was given on a close over the 9-bar moving average. The gap lower on the day session chart is bearish and puts the market on the defensive. The defensive setup, with the close under the 2nd swing support, could cause some early weakness. The near-term upside target is at 1139.8. The next area of resistance is around 1125.5 and 1139.8, while 1st support hits today at 1096.5 and below there at 1081.8.

COMEX GOLD (AUG) 07/11/2006: The close under the 40-day moving average indicates the longer-term trend could be turning down. 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 market setup is somewhat negative with the close under the 1st swing support. The next upside objective is 634.1. The next area of resistance is around 630.1 and 634.1, while 1st support hits today at 622.1 and below there at 618.0.