GOLD:
GOLD MARKET FUNDAMENTALS: It certainly helps gold off the starting line this morning to see renewed speculation that China might eventually raise their gold reserves. The fact that Lebanon rejected a US plan for a cease fire is also giving the market a slight lift off its Monday lows. It is also positive for gold to see Fidel Castro predicting a global commodities boom off the "surprising number of global phenomena currently unfolding". Even more surprising is the fact that gold is forging such impressive gains after the liquidation wave Monday, reports of gold selling by individuals overnight and especially after reports this morning of higher gold production from Newcrest Mining. In a big picture sense, the talk that China might eventually convert just 2-3% of its massive foreign currency reserves into gold, could provide a significant underpin to gold prices, even if that prospect could take months and perhaps years to manifest itself. In the end, the failure to get a quick cease fire resolution from Lebanon and Israel seems to have turned sentiment around in gold and now it could take a couple of days before, the market is willing to re-embrace the "Peace" potential. With a significant flare up of fighting in Afghanistan and the Middle East fighting continuing, the bull camp would seem to maintain an near term edge but any evidence that China might be a buyer of gold could intensify the bull's control over prices. It should also be noted that gold company merger and buyout interest seems to be on the rise over the last two sessions and that might also add to the bull's control. Trend line support today in the August gold comes in at $604.6 but it would seem like the market has enough fundamental news flow to facilitate a rise back above $625 and perhaps even a rise to $637. However, the ebb and flow of the Middle East tensions could step in and trip up what appears to be a mostly bullish near term tilt in prices. Merger and acquisition interest, talk of Chinese reserve buying and ongoing flight to quality buying should be enough to see gold prices grind their way back toward the early July highs. However, the gold market remains moderately overbought from a longer term technical perspective and the anxiety level in the global economy must remain at a high pitch to cement interest in this market. It might also be necessary to see equity and energy prices rising in sync! Near term targeting is $629 but the August gold needs to hold above $613 to maintain a bullish technical posture.

SILVER:
SILVER MARKET FUNDAMENTALS: The silver market has also maintained a pattern of higher lows on the charts and the market seems to be getting a much more supportive spillover from the rest of the metals markets in the early action today. A moderate volume spike on the reversal yesterday seems to suggest that the bull camp has some intensity and with the overnight reports of a 341% increase in June Chinese silver imports and a 294% increase in January through June Chinese silver imports, it is likely that the silver market will be consistently underpinned well above the recent lows. With the US equity market leading the global markets on a charge higher yesterday and that positive bias mostly remaining in place overnight, the silver market probably gets out from under the physical commodity market liquidation wave that was seemingly gaining some momentum into the US opening on Monday. It is also possible that a wave of new, gold company merger and buy out stories will indirectly support silver and silver assets in the coming sessions. With a solid pattern of higher lows and a modest amount of positive outside market forces, we suspect that silver prices will claw their way back toward the early July consolidation highs up around $11.76. However, the silver market needs to see generally favorable gold market action and generally favorable equity market action, just to see a pattern of gains emerge, especially since the US economic report schedule today might serve to hold silver back periodically. The path of least resistance is pointing upward, unless the September silver contract fails to hold above critical support on the charts of $10.84.

METALS TECHNICAL OUTLOOK 7/25/2006

COMEX SILVER (SEP) 07/25/2006: Stochastics trending lower at midrange will tend to reinforce a move lower especially if support levels are taken out. The market's short-term trend is negative as the close remains below the 9-day moving average. The upside closing price reversal on the daily chart is somewhat bullish. It is a slightly negative indicator that the close was under the swing pivot. The next downside objective is 1059.1. The next area of resistance is around 1106.0 and 1115.0, while 1st support hits today at 1078.1 and below there at 1059.1.

COMEX GOLD (AUG) 07/25/2006: The market back below the 40-day moving average suggests the longer-term trend could be turning down. Momentum studies trending lower at mid-range could accelerate a price break if support levels are broken. A negative signal for trend short-term was given on a close under the 9-bar moving average. The gap down on the day session chart is bearish with more selling pressure possible today. The market's close below the pivot swing number is a mildly negative setup. The next downside target is 597.9. The next area of resistance is around 619.8 and 624.4, while 1st support hits today at 606.6 and below there at 597.9.