GOLD:
GOLD MARKET FUNDAMENTALS: In a potentially positive story overnight the Bundesbank President indicated that Germany should avoid gold sales for budgetary reasons and that would seem to hint at a desire to hold gold at the central bank level. However, in further remarks the Central Banker from Germany indicated that Germany would be able to shift reserves from gold to currency holdings and that is in effect a quasi sale of gold. In other news overnight gold might have been minimally supported by news that Tanzanian 2nd quarter gold production declined by 6.9%, with first half year production of gold in Tanzania totaling only 20,976 kilograms versus 24,273 kilograms in the prior year! With the flight to quality element in gold expected to remain in place into and through the official Iranian decision this morning and the US Fed speeches today generally expected to undermine the Dollar, it would seem like the gold market is set to be underpinned by a series of bullish fundamental themes but at the same time the market might remain partially limited by lackluster technical considerations. While the Press and a number of players are pointing to slack technicals as limiting force in gold, the prospect of a resumption of declines in the Dollar and the prospect of flight to quality support off Iran and rising oil prices, seems to leave the bull camp with a slight edge. However, if the gold market hasn't managed a rise above the 100 day moving average at $646.5 by mid session that might indicate a failure off the bullish events for the day. In fact, the Iranian answer is expected at 7:30 am cst and the first Fed speech is set to begin at 11:45 am cst and that should mean that action in gold could be front loaded early in the session. We suspect that December gold will be able to hold close-in support at the $630.6 level, but the market will have to prove itself with a second straight upward pulse in a row.

SILVER:
SILVER MARKET FUNDAMENTALS: With the gold market attempting to return to a flight to quality item in the lead up to the Iranian decision, the silver market is apparently set to track in the shoes of gold instead of leading the precious metals complex. However, the Press overnight was rife again with suggestions that silver was relatively cheaper than gold and therefore the silver market might be expected to garner a larger portion of fresh buying interest in the precious metals. Certainly the silver market is seeing some indirect pressure this morning from a recovery in the Dollar and an initial slide in copper prices, but the trade does seem to be mostly positively biased into the Iranian UN decision this morning. Talk of extreme tightness in the Nickel market is supposedly set to lend support to silver and other base metals prices off the assumption that similar tightness is expected to manifest itself in silver once the above ground surpluses are pared down. However, in the near term the silver market hasn't exactly displayed a true pattern of tightening in exchange stocks but the volume and open interest in global silver vehicles has soared and that has certainly tightened the "implied" supply of silver. In the mean time, silver does appear to be set to follow gold. With the distinct gap above the 100 day moving average yesterday, the silver market would seem to have a generally positive technical setup but the market might have to maintain prices above $12.28 today to keep the technical picture distinctly positive. In fact some traders think that September silver must manage a rise and close above $12.50 today to throw off the weight of overhead resistance on the charts. We think that the pattern of higher lows will be maintained, but we are not sure that the market is capable of breaking out to the upside today. The Higher lows pattern would give the market solid support today at $11.98.

METALS TECHNICAL OUTLOOK 8/22/2006

COMEX SILVER (SEP) 08/22/2006: Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. The market's short-term trend is positive on the close above the 9-day moving average. If yesterday's gap higher on the day session chart holds, additional buying could develop this session. Since the close was above the 2nd swing resistance number, the market's posture is bullish and could see more upside follow-through early in the session. The next downside target is now at 1219.8. The next area of resistance is around 1242.5 and 1251.8, while 1st support hits today at 1226.5 and below there at 1219.8.

COMEX GOLD (DEC) 08/22/2006: Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The close below the 9-day moving average is a negative short-term indicator for trend. If yesterday's gap higher on the day session chart holds, additional buying could develop this session. There could be more upside follow through since the market closed above the 2nd swing resistance. The next downside target is now at 629.8. The next area of resistance is around 637.5 and 639.1, while 1st support hits today at 632.9 and below there at 629.8.