GOLD:
GOLD MARKET FUNDAMENTALS: It is pretty impressive to see the gold market manage even minimal gains immediately after such an extensive compacted rally on Tuesday. In other words, despite what could be considered a moderately overbought short term technical condition, the gold market has managed to extend the upward pulse in prices. Apparently the gold market was supported by the Indian explosions, possibly because of concerns that the bombing incident could cause a chain reaction of political violence in that country. While the market doesn't appear to be intently focused on the Iranian situation, today was a deadline tossed around by the EU and UN officials and therefore it is possible that some harsh dialogue about sanctions surfaces and roils the marketplace. While recent Chinese trade surplus figures would seem to point to another record US Trade Deficit reading this morning, the US Dollar has been on the rise off last week's lows and therefore the numbers today could be an important inflection point for the Dollar. In fact, higher Dollar action has probably held back gold from even more gains recently. Traders suggest that near term August gold support has moved up to $639.4 and that resistance is thought to be centered around the $650 level. One has to concede to a positive bias even though a $5 to $6 short term technical setback would not be surprising. We do get the sense that recent grain market action is fomenting the prospect of yet another new inflationary pressure and therefore it is possible that gains in the grain markets actually contributed to the gains in gold yesterday. However, a more rational view is that geopolitical issues provided the lion's share of the run up yesterday. In fact, unless the equity market dives and or the macro economic outlook deteriorates significantly, we have to think that the gold market will attempt to maintain an upward bias. With sharply higher oil prices, sharply higher grain prices, a soaring US Trade deficit, indications that Iran won't halt enrichment or some other minor development, the gold market probably makes the $650 level a support zone instead of a resistance area. In other words, the gold market seems to have a number of potentially supportive themes drifting in and out of the markets focus.

SILVER:
SILVER MARKET FUNDAMENTALS: Like the gold market, it is somewhat impressive to see the silver market manage a slightly higher opening today after such a concentrated run up in prices in the prior session. In other words, sharply higher prices haven't discouraged fresh buyers from entering the market. With copper prices also showing sharp gains at the start of the session today and with the rest of the metals rising in sync, it seems that the bull camp retains a distinct edge. However, one gets the sense that the silver market is a little more reliant on favorable equity market action than the gold market, but with stellar gains in the copper market this morning, the silver market can probably discount somewhat discouraging equity market action. It seems that silver stocks have resumed tightening this week, but so far the numbers aren't that significant! It seems that the bull camp has an edge but it also seems like silver is a follower instead of leadership market. With the September silver still holding below the prior high for the move at $11.63 that level could become a critical pivot point in the coming sessions. In other words, without the market punching up through that level, some in the trade could begin to fret over a loss of momentum. However, there seems to be enough flight to quality issues to support the gold market and therefore the silver market should be indirectly supported above close-in support of $11.45. If the gold market manages to rise to $650, that could set the stage for a September silver rise to the critical $12.00 level.

METALS TECHNICAL OUTLOOK 7/12/2006

COMEX SILVER (SEP) 07/12/2006: Momentum studies are trending higher but have entered overbought levels. The market's close above the 9-day moving average suggests the short-term trend remains positive. Follow through buying looks likely if the market can hold yesterday's gap on the day session chart. The market has a bullish tilt coming into today's trade with the close above the 2nd swing resistance. The next upside objective is 1183.0. The next area of resistance is around 1172.0 and 1183.0, while 1st support hits today at 1138.1 and below there at 1115.1.

COMEX GOLD (AUG) 07/12/2006: The cross over and close above the 60-day moving average indicates the longer-term trend has turned up. Momentum studies are trending higher but have entered overbought levels. The close above the 9-day moving average is a positive short-term indicator for trend. If yesterday's gap higher on the day session chart holds, additional buying could develop this session. The market's close above the 2nd swing resistance number is a bullish indication. The next upside target is 652.5. The next area of resistance is around 649.1 and 652.5, while 1st support hits today at 637.1 and below there at 628.4.