GOLD:
GOLD MARKET FUNDAMENTALS: The gold market has started out slightly weaker this morning and that is probably the result of position squaring ahead of the FOMC meeting this afternoon. It appears that the supply tilt in gold will remain somewhat supportive, with major gold players trumpeting the idea of de-hedging and a major gold miner, Barrick Gold, apparently looking to add up to 2 million ounces of reserves under its control and apparently Barrick Gold intends to build that reserve by acquiring Asia-Pacific companies with gold reserves. With the recent news of a decline in Harmony gold production and the resulting earnings loss at that company, at least one major gold mine looks to have trouble increasing output in the coming quarters. In fact, it is still widely accepted that global gold production will mostly remain steady or lower until sometime in 2008! Furthermore, a private source has suggested that the 2nd quarter 2006 hedge book impact on the world gold market has managed another decline of 5.1 million ounces and that in a way lowers the available supply and in turn should serve to support gold prices above the $600 level. With the US oil supply glitch yesterday, potentially hamstringing US oil supply flow for months, and the Middle East conflict also expected to keep financial uncertainty high, it would appear that flight to quality or investment interest in gold will remain strong. Therefore, the gold market seems to have supply and demand elements in its favor, and that leaves the market waiting to see whether or not the US Fed is going to take the edge off gold demand, by raising interest rates, or if the Fed will accentuate demand by leaving rates steady. The added windfall of no change in rates today is the potential to see the Dollar weaken off a pause. While some in the trade think that the December gold could slide back to $650 in the face of the Fed decision today, one probably can't rule out a temporary back and fill to $643 in the event that volatility really kicks up today. In looking back to the recent headlines and the pattern of supply and demand in gold, it certainly seems like the trend will remain positive despite temporary meandering. In short, the overall look toward gold has seemingly solidified with the events of the last two weeks (with the exception of the fear of slowing in the US economy) and therefore, the FOMC decision today is extremely important. On a decline to $643 today traders should become buyers looking for a return to levels above $675 in the coming weeks.

SILVER:
SILVER MARKET FUNDAMENTALS: Apparently the silver market had to pay for last week's compacted gains, as silver seemingly lost ground to gold and at times was adjusting its focus back toward the industrial metals markets and away from gold financial considerations. However, with the recent headlines that silver is coming back into vogue and the silver market maintaining a significantly smaller net spec long positioning than gold, it would seem like September silver is entrenching itself above the most recent psychological level on the charts of $12.00. However, the curse of the "headline story" from last weekend has apparently discouraged some fresh buyers in silver. It is also possible that choppy action in copper has discouraged some silver buyers and therefore the market might have to correct, just to find a level that attracts fresh buying. Like a number of other markets, the silver market is probably set to mark time ahead of the Fed, with the bulls hopeful of a pause and the bear camp hopeful of a surprise rate hike. With the surprising oil supply glitch in the US yesterday, there is the prospect of significantly higher oil prices and slower growth ahead and that might force the bull camp in silver to completely shift to an inflation/flight to quality or investment theme and in the process turn further away from the hope of physical or industrial demand. Like the gold market, silver might be in for some minor back and fill into the FOMC meeting result this afternoon. With the silver market performing relatively weaker than the rest of the metals over the last 24 hours, we are not sure that $12.09 support is capable of directly supporting prices through near term developments. Another critical support zone on the charts, (off an old gap area) is $11.90 and that might be a fresh buy point for conservative traders over the coming two sessions.

METALS TECHNICAL OUTLOOK 8/8/2006

COMEX SILVER (SEP) 08/08/2006: 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 swing indicator gave a moderately negative reading with the close below the 1st support number. The near-term upside target is at 1261.0. The next area of resistance is around 1242.0 and 1261.0, while 1st support hits today at 1211.1 and below there at 1199.1.

COMEX GOLD (DEC) 08/08/2006: The upside crossover (9 above 18) of the moving averages suggests a developing short-term uptrend. Momentum studies are trending higher but have entered overbought levels. 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 666.3. The next area of resistance is around 662.7 and 666.3, while 1st support hits today at 656.3 and below there at 653.4.