GOLD:
GOLD MARKET FUNDAMENTALS: With the market re-spinning the recent bullish story about Central Bank sales running under the prescribed quota level, into a bear item overnight, it is clear that the bear camp has worked itself into market sentiment. In fact, seeing the gold market almost totally discount the decline in the Dollar and the sharp rally in the stock market yesterday appears to highlight generally bearish psychology. While the Press continues to cover stories predicting slack gold production and other stories are documenting an ongoing pattern of de-hedging, the gold market still seems to be in a "doubtful" posture, which would seem to leave the market vulnerable to more selling. Despite the fact that the Euro zone has recently published signs of strengthening growth and the US equity market has charged higher, the hope of better global growth ahead seems to have been largely countervailed by the rising concern of slowing in the US. In fact, in looking at recent Chinese copper concentrate import data for the month of July (a decline of 6%) one might gather the opinion that the Chinese economy is also slowing and therefore it would seem like the gold market is vulnerable to slackening demand talk. In the short term, the market appears to hold out hope that the US CPI reading this morning will counter the PPI from yesterday and that the US economic numbers this morning will countervail the fear of economic slowing thrown off by the numbers yesterday. Lastly the trade seems to also be of a mind to discount the potentially supportive impact of a weakening Dollar. While the gold market might bounce early today, the tide of sentiment seems to be temporarily against gold and with the PPI report extremely discouraging to the bull camp yesterday, we have to suggest that traders implement coverage against long term position longs into the CPI report as another round of disappointing numbers could prompt a slide down to $625 basis the December contract. In fact, as long as the US growth pace is a concern, the market is ignoring Dollar weakness and oil prices are soft, the gold market will remain vulnerable. However, the long term bull structure of the gold market remains intact, but it might take more technical balancing before a solid support zone is carved out.

SILVER:
SILVER MARKET FUNDAMENTALS: While the action in silver on Tuesday wasn't exactly stellar it would seem that silver and gold will continue to diverge. It does appear as if the silver market is less overbought than gold (according to recent COT report data) and to some it is clear that silver is managing to dodge some financial or flight to quality liquidation pressures. However, a significant failure in the copper market could make it more difficult for silver to stand outside of the liquidation pressure being seen periodically in the gold market, because that could hint at a general softening of physical demand for all metals as a result of the China affect. While the link between silver and equity prices has been somewhat weak of late, most traders still think that higher equity prices are a more supportive outside market development than weaker equity prices. Therefore, the trade is seeing very little fresh fundamental information and what little fundamental information there is, seems to be coming down in the bear's favor. While some in the silver trade are emboldened by the fact that silver avoided a new low for the move yesterday, and are also impressed by the fact that the September contract managed to regain the $12.00 level yesterday after the sell off, one has to regard the markets recent action as a sign that the bear camp has some capacity. According to some technical analysts the $12.00 level offers up initial support again today, but we would avoid being long without some form of long put or short call protection into the numbers today, as another sweep of low inflation and weak US economic numbers does not seem to be a prescription for higher silver prices. A failure to hold above $12.00 could mean that prices are headed down to $11.72. On a slide below $11.70, we would think the spec and fund long in silver would be nearly eliminated and it will then be safe for risk adverse buyers to re-enter the silver market.

METALS TECHNICAL OUTLOOK 8/16/2006

COMEX SILVER (SEP) 08/16/2006: Momentum studies are trending lower from high levels which should accelerate a move lower on a break below the 1st swing support. The close below the 9-day moving average is a negative short-term indicator for trend. It is a slightly negative indicator that the close was lower than the pivot swing number. The next downside objective is 1174.3. The next area of resistance is around 1223.5 and 1234.3, while 1st support hits today at 1193.5 and below there at 1174.3.

COMEX GOLD (DEC) 08/16/2006: The close under the 40-day moving average indicates the longer-term trend could be turning down. Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. 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 objective is 626.9. The next area of resistance is around 636.1 and 639.8, while 1st support hits today at 629.7 and below there at 626.9.