GOLD:
GOLD MARKET FUNDAMENTALS: While the gold trade was disappointing in the lack of flight to quality reaction to the recent bombing threat, the bull camp seemed to redeem itself by launching a distinct wave of physical buying interest in the face of the slide Thursday. While the trade was logically justified in dumping positions yesterday off the idea that a significant contraction in the global economy could damage jewelry/industrial demand, the incident could also have sent oil prices down sharply, which in turn could have severely reduced investment interest for gold. However, the world so far has been able to discount the potential long term damage to the economy from the terrorist threat and that in turn has allowed a number of physical demand driven commodity markets like gold to rebound. For some, the whole incident simply enhances the attractiveness of gold. We suspect that the gold market will pay attention to the US retail sales readings this morning, especially with the Dollar showing strength yesterday and the market recently fretting over the threat of slowing. Early in the week the market was embracing the idea that recent rate hikes would not halt the return of inflation and therefore, the bull camp will be looking for more confirmation of that potential from strong scheduled US numbers and from the combination of gains in equity and energy prices. In a fresh and supportive supply side note, a South African publication this morning carried a story about surface gold supplies running out and with the report coming out in the wake of the 9.5% decline in South African gold production in June, the idea of tightening supply is given another boost. While the market is impressive in its ability to bounce back this morning, the overnight rally could be a little deceiving, as the declines on Thursday might have been overdone and the rally this morning might end up being a simple technical reaction. In fact, with the gold market actually managing a new low for the move overnight, the charts are still somewhat damaged. While the Press is trumpeting a world that is "bouncing back" quickly from the terrorist incident, we remain concerned about the apparently economic slowing that was already in motion prior to the terror revelations. However, the gold market has been resilient and we still have hope that the December gold will be able to respect critical support on the charts of $643, $635 and most importantly support at the $625 level.

SILVER:
SILVER MARKET FUNDAMENTALS: Like the gold market, the silver market has been able to attract some buyers in the wake of the big wash on Thursday and that has served to underpin the market on the charts. With the copper market showing solid early gains and the gold market producing positive headlines with reports of solid physical buying, the bear camp doesn't appear to have as much control as was present in the prior session. In the end, the gold market seems to be getting more positive headline flow than silver. However, given the aggressive washout on Thursday and the initial higher action today, it would seem like bargain hunters are still interested in silver. While the silver market didn't exactly track the equity market action on Thursday, in general the bull camp in silver seems to be poised to respond more favorably to positive economic potentials than negative and therefore, the bull camp in silver will probably see more support from favorable equity market action, than it will from disconcerting economic developments. While the bull camp is emboldened by the market's apparent bounce off trend line support of $12.05 overnight, one probably needs to maintain stops on longs below the $11.90 level for the coming sessions. However, given the outside market leadership in gold and copper, we doubt that the bear camp is going to pressure silver through the overnight lows. On the other hand, if the slightly optimistic macro tilt in place early today is lost, or the US scheduled numbers depict clear cut slowing, the September silver contract could quickly be put back on the technical rocks. We suspect that silver will avoid a restart of the selling pressure seen on Thursday, but a failure to hold $12.00 on a close basis today, could project a washout to levels below $11.75.

METALS TECHNICAL OUTLOOK 8/11/2006

COMEX SILVER (SEP) 08/11/2006: The daily stochastics gave a bearish indicator with a crossover down. Momentum studies are trending lower from high levels which should accelerate a move lower on a break below the 1st swing support. A negative signal for trend short-term was given on a close under the 9-bar moving average. The market is in a bearish position with the close below the 2nd swing support number. The next downside objective is now at 1178.1. The next area of resistance is around 1231.0 and 1260.0, while 1st support hits today at 1190.1 and below there at 1178.1.

COMEX GOLD (DEC) 08/11/2006: Momentum studies are trending higher but have entered overbought levels. The market back below the 18-day moving average suggests the intermediate-term trend could be turning down. The close below the 2nd swing support number puts the market on the defensive. The next upside target is 665.7. The next area of resistance is around 654.0 and 665.7, while 1st support hits today at 638.0 and below there at 633.8.