GOLD:
GOLD MARKET FUNDAMENTALS: A story about European Central Bank gold sales holding below quota levels, is certainly supportive from a big picture stance, but it is possible that the precious metals are instead set to be buffeted by the Middle East situation and the shifting outlook for the global economy. In fact, in the near term, the gold market looks to continue to speculating on the direction of the world economy and whether or not there is still an actual threat of inflation. Some Press outlets have suggested this morning that stagflation and not inflation might be set to drive metals prices higher, as investors fret over the unsettling impact of slowing growth and rising commodity prices. If the gold market were to transition to a stagflation focus from a growth and inflation focus that would indicate the bull camp is capable of shifting its focus considerably and that is usually a sign of an entrenched bullish mentality. While the market is showing positive early action, it is possible that a slight cooling of Middle East tensions will prompt some players to bank long profits. In fact, with the July 25th Commitment of Traders with Options report showed the Gold Non-Commercial position to be net long 100,198 contracts and the Non-reportable position also net long 42,882 contracts there should be some concern that the market is vulnerable to profit taking. In fact, the COT report positioning is certainly understated, with the market into the opening this morning, holding about $18 an ounce above the level where the COT report was measured. We suspect that the market will easily be able to respect chart support of $625, but closer in support of $632.6 might be a little more difficult to hold. To start the week, there does appear to be moderate overhead resistance up at $641.5.

SILVER:
SILVER MARKET FUNDAMENTALS: With exchange stocks falling below a critical psychological level and gold prices starting the week out on a positive note there would seem to be a solid fundamental foundation for silver. However, seeing recent signs of slowing in the US economic numbers probably serves to countervail concern that supply is tightening. However, with both the gold and copper markets providing ongoing bullish leadership to silver this morning, it would seem like both the flight to quality and industrial demand driven market psychology is positive for the silver market in the early action this morning. However, the silver market might not get as much direct support from a stagflation environment as the gold market and seeing persistent fears of slower global growth could simply serve to increase the back and forth price volatility in silver prices in the week's ahead. While an initial upward bias exists this morning, the September silver might have fairly solid resistance up at $11.54. It also remains to be seen whether or not the silver market will pay any attention to the fact that exchange stocks have fallen below a key psychological level of 100 million ounces. With the July 25th Commitment of Traders with Options report showing the Silver Non-Commercial position to be net long 19,216 contracts and the Non-reportable position also net long 19,695 contracts, the silver market is moderately overbought but certainly not without additional buying capacity. Near term support is seen at $11.38 and the upward bias looks to continue as long as the outlook for the global economy remains positive.

METALS TECHNICAL OUTLOOK 7/31/2006

COMEX SILVER (SEP) 07/31/2006: Momentum studies are rising from mid-range, which could accelerate a move higher if resistance levels are penetrated. 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 objective is 1150.5. The next area of resistance is around 1143.0 and 1150.5, while 1st support hits today at 1130.1 and below there at 1124.5.

COMEX GOLD (AUG) 07/31/2006: Stochastics trending lower at midrange will tend to reinforce a move lower especially if support levels are taken out. The market's close above the 9-day moving average suggests the short-term trend remains positive. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The next downside objective is now at 621.3. The next area of resistance is around 640.5 and 644.2, while 1st support hits today at 629.1 and below there at 621.3.