GOLD:
GOLD MARKET FUNDAMENTALS: The gold market is obviously seeing flight to quality liquidation in the wake of the Middle East cease fire and not surprisingly because of the rather significant correction in oil prices. In fact, the investment or flight to quality crowd seems to be consistently backing away from the market and is doing so in a moderately aggressive fashion and therefore seeing the US Dollar manage a distinct rise off the data this morning, probably serves to keep the heat up on a market that is already vulnerable. In a positive note, a Canadian gold mining company suggested that its shareholders reject a takeover bid from Barrick Gold Corp because the unsolicited buyout offer seriously undervalues the company's assets and that might refocus part of the trade on the value that continues to exist in gold sector. However, in the near term, the quasi truce in the Middle East, persistently lower oil prices and a lingering concern of economic slowing ahead probably leaves the longs under duress. While the gold trade was initially impressed with the markets capacity to bounce from the early lows Monday, the fact that prices have returned to the lows again in the early trade today, would seem to suggest that the bears retain a near term edge, even if that edge is anticipating a Dollar rally later this morning. In a longer term and partially supportive development, the gold market has continued to notice that sales by central banks are running well behind agreed to level, with the sales at the end of July at only 331 tons, versus 500 allowable and that could eventually lend some support to prices. More downside potential ahead, even if the Dollar doesn't manage to soar in the wake of the PPI report this morning. In fact, as long as the truce in the Middle East continues and that in turn allows oil prices to slide, it is possible that gold seeks lower values. In the near term we can't rule out a retest of the $625 level in the December contract and in the event that the US Dollar manages to rise above 85.60 this morning, the December gold could trade down into a $624 to $620 range. In fact, without some sudden and distinct change in the headline flow, it is difficult to come up with a quick reason for gold to rally.

SILVER:
SILVER MARKET FUNDAMENTALS: While the silver market has certainly outperformed the gold market recently, that action doesn't seem to have removed the ongoing negative bias present into the early action again today. It does seem like the silver market is getting some positive lift from the equity market and it also seems like the silver market is tracking copper market fundamentals closer than gold market fundamentals. However, given the track in prices recently it could take a significant improvement in the macro economic outlook just to take the silver market out of what appears to be a slightly negative technical posture. The Press continues to carry stories about silver coming into more relative favor than gold, but with the entire precious metals complex seemingly falling out of favor, the investment buzz toward silver hasn't inspired enough new buying interest, to offset the flight to quality liquidation impetus. With the metals mostly under pressure again this morning, the market lacking a definitive bullish theme and because of the slightly overbought condition in silver, the edge has to remain with the bear camp again today. In fact, we suspect that September silver will find it difficult to hold above $11.91. In the event that the Dollar manages to rise off the US PPI report this morning that could end up sending the silver down to even lower support of $11.72.

METALS TECHNICAL OUTLOOK 8/15/2006

COMEX SILVER (SEP) 08/15/2006: Stochastics turning bearish at overbought levels will tend to support lower prices if support levels are broken. The market's close below the 9-day moving average is an indication the short-term trend remains negative. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The next downside target is now at 1167.5. The next area of resistance is around 1237.0 and 1251.5, while 1st support hits today at 1195.1 and below there at 1167.5.

COMEX GOLD (DEC) 08/15/2006: The market back below the 60-day moving average suggests the longer-term trend could be turning down. Declining momentum studies in the neutral zone will tend to reinforce lower price action. 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 pivot swing number is a mildly negative setup. The next downside objective is 629.8. The next area of resistance is around 643.9 and 648.3, while 1st support hits today at 634.7 and below there at 629.8.