GOLD:
GOLD MARKET FUNDAMENTALS: Apparently the market's sudden recovery rally yesterday morning, after showing early weakness, was partially the result of market ideas that the Fed wouldn't be able to prevent inflation from gaining a foothold. With the equity market and energy markets rising in sync yesterday and the equity market seemingly signaling an "all clear" in the wake of the recent US Fed meeting, it certainly appeared like inflation or flight to quality interests for gold was ramping upward. With a major Australian Miner, Newcrest overnight suggesting that they would continue to de-hedge and would move to a 50% un-hedged position, one would expect a fresh positive push to the investment theme in gold, but the de-hedging news also serves to tighten the implied supply and demand equation in gold. In another positive note, Russian gold and currency reserves supposedly touched a record high of $266 billion in the most recent report, and while that is probably the result of oil revenues being plowed into currencies, there is always the potential that some of that crush of petro-cash will find its way into gold holdings. In a more direct and potentially supportive development, South African gold production fell 9.5% in June and that should dovetail with the ongoing talk of de-hedging, to project lower overall supplies of gold in the future. The question today, is whether or not the US trade figures will rekindle concern for the US trade deficit and whether or not the new terrorist threats overnight will serve to contribute to slowing fears or contribute to flight to quality interest. The sharp recovery rally yesterday might be a signal that the trade generally remains concerned about inflation. In fact, as we have suggested a number of times, the metals can get into a very supportive position if the equity market and oil prices manage to rise in sync, as that really fosters the inflationary view. We have seen several articles predicting that the Fed won't be able to stop inflation and with the recent Fed pause, the stories are given even more attention. However, we doubt that the gold market is going to rise straight away, in an aggressive fashion, but we do think that the up trend channel at $649.1 will generally support the trade and that gold prices are set to grind higher. We had hoped to buy December gold on a correction to $643 but just missed that targeting yesterday. Traders now might have to raise their buy orders to $649 but will still have to risk those positions to $625.

SILVER:
SILVER MARKET FUNDAMENTALS: The silver market remains positively biased from both a precious metals and industrial metals perspective. The silver market continues to get generally supportive influence from Press articles on the interest in ETF's and off the news of a possible takeover of a Mexican silver miner. The sharp coordinated gains in the equity and energy markets at times yesterday certainly seemed to propel the silver market higher and therefore, the trade will continue to watch for that condition. In a minor negative note overnight, silver exchange stocks climbed back above critical psychological levels, but still haven't been a dominating focus of the trade recently. In general, the silver is at times carving out its own daily direction, but most of the time, the silver market is simply tracking in the footsteps of gold! With the silver market forging an upward trend on the charts and also posting higher-highs with relative frequency, we assume that the trend is up. However, the silver market can easily be pulled back from the upside by the fear of economic slowing and the terrorist threat overnight could under the right conditions, serve to undermine the silver action temporarily. Top of the channel in September silver today is $12.76 and the bottom of the channel is now pulled up to $12.01 but that channel is rising by 12 cents per day! While we suspect that the trend will continue to push up prices, we would suggest that fresh longs at least wait for a pull back to the middle of the channel at $12.36, partly because fresh longs might have to risk positions to at least $11.91.

METALS TECHNICAL OUTLOOK 8/10/2006

COMEX SILVER (SEP) 08/10/2006: Studies are showing positive momentum but are now in overbought territory, so some caution is warranted. The close above the 9-day moving average is a positive short-term indicator for trend. 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 1284.6. With a reading over 70, the 9-day RSI is approaching overbought levels. The next area of resistance is around 1272.3 and 1284.6, while 1st support hits today at 1241.8 and below there at 1223.7.

COMEX GOLD (DEC) 08/10/2006: Daily stochastics have risen into overbought territory which will tend to support reversal action if it occurs. The market's close above the 9-day moving average suggests the short-term trend remains positive. Market positioning is positive with the close over the 1st swing resistance. The next upside target is 672.1. The next area of resistance is around 667.2 and 672.1, while 1st support hits today at 656.8 and below there at 651.2.