GOLD:
GOLD MARKET FUNDAMENTALS: While flight to quality conditions continue to lurk in the background, the gold market is either becoming temporarily calloused to the Middle East situation or the market is beginning to think that the fighting will remain localized. While the market was seemingly lifted last week by the revelation that the US Fed might stand back from the rate hike pattern, the market is somewhat undermined by the threat of slowing that comes along with the pause in the rate hike pattern. In fact, even in the face of a prediction of $850 gold from the Gold Fields Mineral Services CEO, the market doesn't seem to be bullishly biased in the early going today. It's a little surprising that the market wasn't lifted overnight by the GFMS CEO comments, which highlighted the potential for China to "Switch" 2% to 3% of its foreign exchange reserves into gold and that highlights the initial bear control. With the crude oil market coming into the US opening this morning roughly $6.00 a barrel below the recent highs, one might also suggest that there is less anxiety emanating from the oil sector, which in turns has allowed the market to downplay the current Middle East crisis. It should be noted that some Press outlets this morning are carrying stories of increasing physical demand for gold bullion on price weakness and to some that reiterates the ongoing presence of a bull trend. Some players have suggested that the August gold contract has little chart support until the $608.5 level, but a closer in support zone of $611.5 might offer up some initial support. Resistance today might be seen off the bottom of the recent consolidation lows around $619.5. With the July 18th Commitment of Traders with Options report showing the Gold Non-Commercial position to be net long 105,436 contracts and the Non-reportable position also net long 37,368 contracts, that leaves the combined spec and fund long position at 142,000 contracts. Therefore from the numbers it seems that the gold market is vulnerable to more long liquidation. In fact, if Middle East tensions fail to inspire and oil prices remain slack, about the only thing discouraging ongoing selling in gold might be a slightly positive track in the equity market. However, seeing the equity market as the mainstay factor against ongoing selling, shouldn't give the bull camp much confidence! In short, the path of least resistance is pointing downward but we don't get the sense that the declines are destined to be very aggressive. Near term downside targeting in the event that macro economic conditions hold steady is $607 basis the August contract.

SILVER:
SILVER MARKET FUNDAMENTALS: While the silver market is showing signs of holding positive in the face of gold market weakness early today, the trade seems to be lacking a definitive theme. On the other hand, the silver market might see slack oil prices, initially higher equity prices and gains in the copper market as a sweep of bullish elements and that might allow the market to diverge with gold and platinum this morning. Technical traders have suggested that silver is maintaining a pattern of higher lows but that the market seems to lack definitive close-in support on the charts until the $10.51 level. Unfortunately for the bull camp, open interest has risen on the recent decline in prices and that is sometimes taken as a confirmation that the trade agrees with the most recent reaction in prices. While the market might seem to have a generally positive macro economic tilt coming from a number of outside markets this morning, the overall macro economic tilt doesn't seem to be solid enough to drive silver prices on its own volition. With the July 18th Commitment of Traders with Options report showing the Silver Non-Commercial position to be net long 18,707 contracts and the Non-reportable position net long 19,505 contracts, the combined spec long is 37,000 contracts and that leaves the market moderately overbought and vulnerable to long liquidation efforts. As we suggested in the prior paragraph the overall macro economic condition is somewhat suspect and for that reason alone, we have to think that silver prices could easily slide toward the up trend channel support line down at $10.57, before the market finds solid buying interest.

METALS TECHNICAL OUTLOOK 7/24/2006

COMEX SILVER (SEP) 07/24/2006: Stochastics trending lower at midrange will tend to reinforce a move lower especially if support levels are taken out. The market back below the 18-day moving average suggests the intermediate-term trend could be turning down. The close below the 1st swing support could weigh on the market. The next downside objective is now at 1039.1. The next area of resistance is around 1112.0 and 1149.0, while 1st support hits today at 1057.1 and below there at 1039.1.

COMEX GOLD (AUG) 07/24/2006: Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. The close under the 18-day moving average indicates the intermediate-term trend could be turning down. The close below the 2nd swing support number puts the market on the defensive. The next downside objective is now at 601.6. The next area of resistance is around 631.2 and 645.6, while 1st support hits today at 609.2 and below there at 601.6.