GOLD:
GOLD MARKET FUNDAMENTALS: With the August gold managing a rise toward $678 in the overnight action, it is clear that the market starts the session out on a positive footing but the fundamental focus continues to narrow to a single flight to quality argument. Over the weekend, the former Speaker of the House suggested that the world might be seeing the beginning of World War III and that certainly emboldens those interested in gold. With a heavy slate of economic information due out from the US this week and especially with a series of inflation readings to be released this week, it is possible that the market gets a clearer picture of the magnitude of slowing in the US economy and that potential might actually serve to increase the risk to fresh longs in gold. In fact, the market is widely expected to see succinctly disappointing views on the economy from the US Fed Chairman later this week. In short, anxiety is lifting gold prices, but most other themes are serving to hold back the market. With the UN looking to intercede in the Lebanon crisis sooon, there is certainly the potential to see the current wave of anxiety reach a zenith in the coming 24 hours and that could leave the gold market significantly overbought from a technical perspective. While the geopolitical condition should continue to favor the bull camp in gold, the July 11th Commitment of Traders with Options report showed the Gold Non-Commercial position to be net long 98,560 contracts and the Non-reportable position also net long 34,926 contracts for a combined spec long of 133,000 contracts. In fact, with the gold market managing a $37 rally to this morning's highs, the COT report certainly understates the current spec and fund long positioning in the gold market. While the UN is expected to intervene in the crisis, we have to initially doubt their capacity to act quickly. However, it is possible that Israel is talked into a temporary pause, but unless the opposing side halts operations, there will be no sustainable cease fire. We think that longs should consider banking profits, running profits stops or selling calls and buying puts against the position, as the $675 level might be the new "sustainable price level" for August gold and moving to $700 might only take place in the event that Syria or Iran are seriously implicated in the initial attacks.

SILVER:
SILVER MARKET FUNDAMENTALS: For the silver market to have remained below last weeks highs in the wake of the stellar gains in the gold market recently, it is clear that macro economic slowing or fears of global macro economic slowing are holding the market back. In fact, in looking at the copper market action recently, it is clear that industrial demand driven markets are also being held back and that more than anything highlights the fact that the rally off the June lows was mostly short covering and hugely financial in nature. In other words, the silver market saw a bit of flight to quality buying, but the trade is just not willing to use the silver market as its primary flight to quality market. In fact, recent silver stock analysis shows little change in supply recently and with the macro economic outlook persistently contracting, it is not all that surprising to see September silver limited below critical chart resistance of $11.82. While it would not seem like a difficult process to get September silver prices back to the critical psychological chart level of $12.00, the rate of gain and a lack of momentum recently appears to weaken the bull case in silver. With the July 11th Commitment of Traders with Options report showing the Silver Non-Commercial position to be net long 19,958 contracts and the Non-reportable position net long 19,212 contracts, the silver market remains well under the record spec and fund long position of 97,000 contracts posted in March of 2004. Therefore, the silver market doesn't seem to be overly vulnerable from a technical perspective, but it is very apparent that silver isn't in the same category as gold in the current bull swing. We see an extremely critical pivot point at $11.55 today and in the near term that $11.82 level seems to be formidable resistance. Those long silver might want to bank profits, run tight stops or sell calls and buy puts against their futures positioning.

METALS TECHNICAL OUTLOOK 7/17/2006

COMEX SILVER (SEP) 07/17/2006: The cross over and close above the 40-day moving average indicates the longer-term trend has turned up. Daily stochastics have risen into overbought territory which will tend to support reversal action if it occurs. The market's short-term trend is positive on the close above the 9-day moving average. The close over the pivot swing is a somewhat positive setup. The next upside target is 1183.3. The next area of resistance is around 1165.5 and 1183.3, while 1st support hits today at 1140.5 and below there at 1133.3.

COMEX GOLD (AUG) 07/17/2006: 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. If yesterday's gap higher on the day session chart holds, additional buying could develop this session. Since the close was above the 2nd swing resistance number, the market's posture is bullish and could see more upside follow-through early in the session. The next upside target is 673.7. The market is becoming somewhat overbought now that the RSI is over 70. The next area of resistance is around 671.5 and 673.7, while 1st support hits today at 664.5 and below there at 659.8.