GOLD:
GOLD MARKET FUNDAMENTALS: With the Dollar apparently giving the gold market a positive start to the session and the rest of the metals markets higher, the bear camp could be put a bit off balance early in the session. So far, the fear of slowing in the US economy is being seen as a positive to gold, as the Dollar is undermined. Apparently the gold market isn't unnerved by the fear of too much slowing and in general the market also hasn't been totally undermined by the news that US inflation appears to be moderating. However, seeing too much slowing, could upend the current optimism and create concerns of stagflation. While some might suggest that stagflation is unlikely, it should be noted that a recent NAHB Housing Index reading fell to the lowest level in 15 years and the US housing starts and permits readings were off moderately yesterday. In short, the gold bulls will have to walk a thin line between, enough weakness to keep the Dollar sliding and so much weakness that a core of traders decide to bail out of long term gold holdings. In a positive overnight development, Gold producer Yamana is apparently set to buy Viceroy Exploration and that merger/buyout activity indicates that many gold industry players still view current asset values to be cheap in the gold sector! While the gold market continues to show signs of recovering off this week's lows, we remain skeptical in the wake of sharply declining oil prices and a soaring equity market. Certainly a large portion of the spec long in gold will ride through some minor weakening of the US economy but we will suggest that gold will remain somewhat vulnerable to bouts of selling, as long as the US economy throws off evidence of slowing and the overall inflationary threat is being downplayed. One would not expect oil prices to remain in a sustained downtrend, especially when one considers the frequency of supply problems in that market over the last year. However, seeing equity prices rise sharply probably plays down the net impact of slowing and therefore our concern of an aggressive liquidation in gold is less than was present at the beginning of the week. Some traders are hopeful that December gold will manage to climb above the 100 day moving average at $644.8 today, as that type of move could inspire another wave of fresh buying. We still think that traders should stay long gold but should keep some short call and long put protection on against that position.

SILVER:
SILVER MARKET FUNDAMENTALS: The silver market has certainly benefited as a result of the strength in gold, platinum and copper in the early going today. So far, it seems that the silver is generally being supported by sharp gains in the equity market and so far the market hasn't been adversely impacted by patently weak US numbers and the fear of more significant slowing ahead. As in the gold market, some traders think that higher equity prices are simply running interference or distracting silver players from the flow of weak US economic readings. However, many traders think that silver will continue to track physical commodity fundamentals but recent correlation shows that silver is also tracking gold and is therefore still being impacted by financial and flight to quality elements. In fact, over the last 24 hours the silver market has been benefiting from both financial/flight to quality issues and physical commodity fundamentals and that probably justifies the 73 cent per ounce rally since the Monday low! With the recent bounce we suspect that the bear camp is less confident in their ability to attack this market. However, the periodic evidence of slowing leaves the market somewhat vulnerable to liquidation, especially if the equity market fails to rise and slack US economic numbers are the only fresh news that is presented to the silver trade. In the mean time, it would seem like silver has established a higher chart support level of $12.11, with little resistance until the $12.72 level.

METALS TECHNICAL OUTLOOK 8/17/2006

COMEX SILVER (SEP) 08/17/2006: Momentum studies trending lower from overbought levels is a bearish indicator and would tend to reinforce lower price action. The close above the 9-day moving average is a positive short-term indicator for trend. Follow through buying looks likely if the market can hold yesterday's gap on the day session chart. Market positioning is positive with the close over the 1st swing resistance. The next downside target is 1203.8. The next area of resistance is around 1241.5 and 1255.8, while 1st support hits today at 1215.5 and below there at 1203.8.

COMEX GOLD (DEC) 08/17/2006: The market now above the 60-day moving average suggests the longer-term trend has turned up. 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. Market positioning is positive with the close over the 1st swing resistance. The next downside target is now at 631.7. The next area of resistance is around 642.7 and 646.6, while 1st support hits today at 635.3 and below there at 631.7.