GOLD:
GOLD MARKET FUNDAMENTALS: With tropical storm Ernesto present in the Gulf of Mexico but downgraded as it passed over Cuba, oil prices weakened again and that might be an undermine to gold prices today. In fact, with another potentially weak US economic report due out today, it would seem like both the flight to quality and physical demand tracks in gold are coming in against the bull camp. With a US survey predicting more tightening from the US Fed ahead and a portion of the gold trade concerned about the gold markets inability to hold its recent rally, the gold market enters the new week under a cloud of suspicion. Furthermore, with oil prices apparently slipping into a down trend of sorts, the inflation threat is certainly subdued even further. Some traders think that the market will have to present increased physical buying interest on upcoming weakness just to offset the declining inflation threat. In the end, the majority of the fundamental elements seem to start the week favoring the bear camp. Certainly, seeing Iran test fire a weapon in recent war games and also seeing intense killing in Iraq over the weekend, leaves the potential for renewed flight to quality buying interest in gold, but with the US waiting until the official August 31st deadline to formally push the UN for action on Iran, the gold market might be left to its own devices, which in the near term seem to favor the bear camp. With a pattern of lower highs on the charts, a lack of flight to quality headlines and a thin US economic report slate, the bear camp seems to have an edge. The August 22nd Commitment of Traders with Options report showed the Gold Non-Commercial position to be net long 94,187 contracts, with the Non-reportable position also net long 36,844 contracts for a combined spec and fund long of 131,000 contracts and that apparently also leaves the gold market vulnerable to more long liquidation. In fact, we can't rule out a slow slide below $625 early this week, considering outside market factors and the expectation of slack US numbers.

SILVER:
SILVER MARKET FUNDAMENTALS: While the silver market is starting the session out on a positive footing, the outlook toward the world economy is somewhat slack and the silver market might be fighting weakness in other metals to start the week. With the copper and platinum markets weak early and the US equity market showing initial signs of weakness, we suspect that the silver will be somewhat restrained. With a recent increase in exchange stocks of silver and gold in a bit of a lower highs pattern, there really isn't a very supportive environment for silver prices. However, like gold, silver has seen periodic buying interest surface on weakness and some traders are pointing to the pattern of higher lows and suggesting that silver maintains a positive technical setup. In the end, the silver market will have to fight to throw off the concern of economic slowing. With the August 22nd Commitment of Traders with Options report showing the Silver Non-Commercial position to be net long 26,129 contracts and the Non-reportable position also net long 21,189 contracts, the silver market is only modestly vulnerable to ongoing technical long liquidation pressure. Some traders suggest that the up trend channel line in September silver is seen at $12.04, with the 100 day moving average seen at $12.12. Therefore, we can't rule out some near term weakness but given recent interest in silver on weakness, we doubt that a major downside failure will be seen in silver in the near term.

METALS TECHNICAL OUTLOOK 8/28/2006

COMEX SILVER (SEP) 08/28/2006: The crossover up in the daily stochastics is a bullish signal. Stochastics are at mid-range but trending higher, which should reinforce a move higher if resistance levels are taken out. The market's close above the 9-day moving average suggests the short-term trend remains positive. The market tilt is slightly negative with the close under the pivot. The near-term upside target is at 1256.0. The next area of resistance is around 1248.0 and 1256.0, while 1st support hits today at 1226.1 and below there at 1212.1.

COMEX GOLD (DEC) 08/28/2006: Daily stochastics are trending lower but have declined into oversold territory. The market's close below the 9-day moving average is an indication the short-term trend remains negative. It is a mildly bullish indicator that the market closed over the pivot swing number. The next downside target is now at 625.9. The next area of resistance is around 633.3 and 635.9, while 1st support hits today at 628.3 and below there at 625.9.