GOLD:
GOLD MARKET FUNDAMENTALS: While the market isn't convinced that the cease fire will have a long shelf life, apparently the trade thinks that flight to quality interests in the metals are set to contract, as a number of players seem to be moving to the sidelines this morning. In fact, despite a story from CNN that jewelry demand is supporting gold prices and that demand in developing countries is on the rise, the market is starting off the new week on a weaker tone. A number of traders continue to be disappointed in the markets failure in the face of last week's terrorism threat and without last weeks stronger than expected US retail sales readings, it is likely that many players would have continued to fret over the potential that the US Fed had over tightened. While a private brokerage moved overnight to raise its price targeting for gold, the demand outlook is still mostly presenting a vulnerable face. From the supply front, the market is accepting of the idea that production is only slowly responding to the higher price structure, but without consistent support from geopolitical anxiety and perhaps a slight measure of inflationary concern from oil prices, the market will be hesitant to buy into the idea that demand will continue to outstrip supply. With the poor technical action on the charts combined with the mostly negative headline flow this morning, one has to give a distinct edge to the bear camp. With the August 8th Commitment of Traders with Options report showing the Gold Non-Commercial position to be net long 106,963 contracts, and the Non-reportable position net long 40,432 contracts, the market is certainly vulnerable to near term selling. While the net spec long position remains moderately overbought, the action since the report was measured probably serves to moderate the markets vulnerability to excessive long liquidation. On the other hand, seeing oil prices fall sharply at the same time that geopolitical anxiety also declines, could lay the ground work for a slide to $625 basis the December contract. However, the market should have initial support on the charts down around $634.7 and as long as there is a flicker of fighting in the Middle East it is possible that gold will manage to respect the higher support zone on the charts.

SILVER:
SILVER MARKET FUNDAMENTALS: While the Press is carrying stories about silver outperforming gold, it is possible that the intermarket relationships are overcome by a slackening of long interest. While the copper market is higher this morning and that would ordinarily lend some support to silver, the copper market is up off internal developments, or it might also be under pressure from ideas of slackening demand. While the market is fresh off news of strong Japanese silver imports in the month of June (+42%), it seems that even bigger picture macro economic considerations are serving to put silver under liquidation pressure. In overnight trade, it is clear that the pressure from gold selling dominated action in silver, but at least world equity market action is showing signs of strength and that could temper the selling interest after a nominal downside reaction. With the August 8th Commitment of Traders with Options report showed the Silver Non-Commercial position to be net long 25,207 contracts and the Non-reportable position also net long 20,882 contracts, (for a combined spec long of 46,000 contracts), it is clear that some selling pressure is in order in silver. However, with the net spec long position only marginally overbought to begin with and the silver market falling down late last week, we suspect that the technical condition of the silver market has been partially leveled already. Near term downside targeting in the September silver is seen at $11.74 but even lower support might be tested down at $11.62, especially if the cease fire in the Middle East is respected and the metals are also hit with sharply lower oil prices.

METALS TECHNICAL OUTLOOK 8/14/2006

COMEX SILVER (SEP) 08/14/2006: Momentum studies are trending lower from high levels which should accelerate a move lower on a break below the 1st swing support. The market's close below the 9-day moving average is an indication the short-term trend remains negative. The market's close below the 1st swing support number suggests a moderately negative setup for today. The next downside target is 1136.3. Short-term indicators on the defensive. Consider selling an intraday bounce. The next area of resistance is around 1219.5 and 1260.3, while 1st support hits today at 1157.5 and below there at 1136.3.

COMEX GOLD (DEC) 08/14/2006: The daily stochastics have crossed over down which is a bearish indication. Declining momentum studies in the neutral zone will tend to reinforce lower price action. A negative signal for trend short-term was given on a close under the 9-bar moving average. The market tilt is slightly negative with the close under the pivot. The next downside objective is 626.1. The next area of resistance is around 654.0 and 664.4, while 1st support hits today at 634.8 and below there at 626.1.