GOLD:
GOLD MARKET FUNDAMENTALS: While a major gold producer (AngloGold) is out this morning with a prediction that its 2007 gold production tally will decline due to lower production in Tanzania and the US, and a major commodity fund Manager in Asia (with over $80 million under management) is predicting the commodities boom to last 4 to 5 years, there does appear to be a slight profit taking mentality afoot in the early overnight action. In fact, a number of players seem to be suggesting that the technicals limited the market overnight and that could leave the overnight high of $636.8 as a key pivot point. On the other hand, seeing Yen inspired selling in the Japanese gold market and seeing reports of higher gold production from a New Zealand gold mining concern seems to have given the trade an initial bearish tilt this morning. It should be noted that Chinese spot gold did manage to finish higher, so the initial bear tilt wasn't a conclusive overnight pattern. While the Asian trade thinks that currency issues are set to dominate the action in gold today, it is possible that the currency impact could be supportive to gold, especially if the US economic numbers this morning give off the general impression of only minor slowing in the US economy. In other words, the numbers need to be just slow enough to undermine the Dollar but strong enough to leave the trade with the impressive that the US economy will be able to sustain its forward motion. Since the overnight trade sees heavy overhead resistance at $636.8, we have to think that level could serve to limit the trade early. However, we do expect to see a reaction to the US numbers this morning but the early set of numbers might support the Dollar and could hinder gold, while the Michigan sentiment numbers should leave the Dollar with a negative bias for the weekend. In fact, unless the GDP report surprises the trade and gives off the impression that the US economy is hanging tough against the slowing trend, we suspect that the Dollar will end up sliding back toward this week's lows. While we concede to a general ongoing upward bias in gold prices, we do get the sense that the market is in the mood for a little back and fill on the charts before resuming the upward climb next week.

SILVER:
SILVER MARKET FUNDAMENTALS: With silver exchange stocks falling to within close proximity of a key psychological level, it is possible that the market is set to get some support from a classic physical supply and demand statistic. While open interest turned up on the recent rally, volume failed to confirm that upswing and therefore the silver market looks to take most of its near term direction from the gold market. It should be noted that platinum prices were lower and copper prices were minimally higher overnight and that leaves the outside market impact on silver somewhat disjointed into the US action. Some traders are pointing to a critical chart support level of $11.33 this morning, while others suggest that resistance in the market is expected to come in at $11.55. While the US economic report slate might temporarily impact silver prices this morning, it is likely that the silver market ends up taking most of its direction from the gold market. While the overall upward bias in silver remains in place, the slight profit taking tilt present in the overnight action could give the bear camp a temporary edge into the US numbers this morning, but as long as the market comes away from the numbers this morning with the idea that the US economy is still moving forward, we doubt that the market will suffer anything other than a modest technical setback. In fact, we see the $11.33 level as a fairly solid support zone and if silver exchange stocks next week, manage to fall below 100 million ounces, for the first time since early 2005, it is possible that the bull camp will regain the upper hand and attempt to push silver back toward the $12.00 level.

METALS TECHNICAL OUTLOOK 7/28/2006

COMEX SILVER (SEP) 07/28/2006: The crossover up in the daily stochastics is a bullish signal. Momentum studies are trending higher from mid-range, which should support a move higher if resistance levels are penetrated. The cross over and close above the 18-day moving average is an indication the intermediate-term trend has turned positive. The gap upmove on the day session chart is a bullish indicator for trend. There could be more upside follow through since the market closed above the 2nd swing resistance. The next upside objective is 1167.3. The next area of resistance is around 1153.5 and 1167.3, while 1st support hits today at 1124.5 and below there at 1109.3.

COMEX GOLD (AUG) 07/28/2006: A negative indicator was given with the downside crossover of the 9 & 18 bar moving average. Declining momentum studies in the neutral zone will tend to reinforce lower price action. 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's close above the 2nd swing resistance number is a bullish indication. The next downside target is now at 623.0. The next area of resistance is around 638.0 and 645.0, while 1st support hits today at 627.0 and below there at 623.0.