GOLD:
GOLD MARKET FUNDAMENTALS: It is highly likely that gold reached a moderately overdone condition yesterday around the highs and against the back drop of a recently soaring US Dollar and falling equity prices, it wasn't surprising that some gold longs decided to bank some long profits. In fact, from last week's lows to yesterday's highs, the August gold contract managed a $41 per ounce rally and managed that rally in the face of persistent gains in the Dollar and a down grade in the economic outlook. Furthermore, with some in the gold trade disappointed in the minimal rise of the US Trade Balance deficit, it is logical to see some longs bank profits and move to the sidelines. On the other hand, it is possible that intensifying Middle East tensions and a return to the old highs in energy prices this morning will continue to discourage profit taking and in fact might even prompt some fresh buying activity. In fact, a number of Press outlets overnight continue to trumpet the long list of potential geopolitical uncertainties and that will more than likely be the mainstay of the bull case today. While the market is showing minimal early gains today, the trade is a little concerned about the prospect of a rise in Japanese interest rates in the next two days and that might have been the element that held back gold prices in Asia. We also have to wonder if the gold market needs some additional profit taking off the $41 rally off the June lows and with the world equity markets showing ongoing weakness, one might suggest that gold will have a slightly more liquidative posture today than yesterday. The $650 level will continue to be solid close-in support on the charts but we can't rule out a temporary slide back to $646. On the other hand, we would generally expect a bull market mentality to remain in place and perhaps intensify in the event that more global violence is seen or in the event that oil prices climb back to their old highs.

SILVER:
SILVER MARKET FUNDAMENTALS: While the silver market seems to have managed to flesh out chart support around the $11.50 level and belayed fears of waning upside momentum with the upside breakout yesterday, the market will continue to take a large measure of its direction from the gold market. With volume and open interest picking up this week on higher price action and the September contract managing to climb above that $11.63 high, the technical trade remains upbeat toward silver. With the Copper market managing an impressive rally to $3.75 yesterday and the platinum market really leading the entire precious metals complex higher this week, it would seem that the silver market is getting a sweep of positive influences from the markets it typically correlates with on a daily basis and that should inspire investment interest and probably emboldens the spec buyers. While equity prices have shown some moderate weakness recently, so far the declines in stock prices haven't undermined the macro economic outlook enough to adversely impact silver but the trade is now watching the action in the stock market a little closer. While silver remains below the prior day's high, prices were making gains early in the overnight session and that should deflate part of the concern inspired by the setback from the highs yesterday. Since the market has respected a pattern of higher lows on the charts and most outside markets are supportive, we have to give the bulls a minor edge today. Close-in support in the September silver comes in today at $11.49 and the next upside resistance point off the up trend channel resistance line is seen at $11.94. For the time being, the bull camp has been able to walk a thin line of support from intense geopolitical concerns and a pattern of rising physical commodity prices and so far the downgrade in the macro economic outlook hasn't countervailed the bullish environment in silver.

METALS TECHNICAL OUTLOOK 7/13/2006

COMEX SILVER (SEP) 07/13/2006: The cross over and close above the 40-day moving average indicates the longer-term trend has turned up. 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. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The near-term upside target is at 1204.0. The next area of resistance is around 1179.0 and 1204.0, while 1st support hits today at 1132.1 and below there at 1110.1.

COMEX GOLD (AUG) 07/13/2006: 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. The market setup is supportive for early gains with the close over the 1st swing resistance. The near-term upside target is at 664.5. With a reading over 70, the 9-day RSI is approaching overbought levels. The next area of resistance is around 658.1 and 664.5, while 1st support hits today at 644.3 and below there at 636.8.