GOLD:
GOLD MARKET FUNDAMENTALS: While the gold market appears to have been dealt a flight to quality blow recently off the sharp slide in oil prices, the market has seemingly shifted its focus back to the Dollar today and so far the Dollar action early in the action Tuesday has been supportive of gold. However, the FOMC meeting minutes release this afternoon is key to whether or not the Dollar will continue to slide in the near term. Some in the trade think that the Fed could present a somewhat hawkish tone in the minutes release today (as Treasury prices have backed off) and that could in turn serve to lift the Dollar and pressure gold. In addition to the impact on the Dollar, hints of a Fed rate hike could also serve to temper forward physical demand expectations in gold and therefore, the market in at least a couple of ways, is fearful of the 1:00 cst release of the FOMC meeting minutes. With the Chinese gold market overnight weaker in response to the lower US action on Monday, the market could have simply extended the weakness from the prior session, but apparently talk of strengthening consumer confidence in Germany helped the market re-gather a positive posture into the early US action. In the end, the gold market seems to be fearful of slowing growth and waning inflation and many traders think that leaves the gold market under of cloud of suspicion. While the World Gold Council claims of a 12% increase in gold jewelry "sales volumes" in the second quarter is a supportive development for gold, the benefit of the "sales" gains were more than offset by news that overall volume of jewelry moved in the second quarter versus the first actually declined by a rather significant 24% and that suggest some buyers are being turned off by rising prices. The gold market might have a positive tilt this morning, due to the Dollar's weakness but currently the market is a one dimensional market that is almost exclusively reliant on further declines in the Dollar. In fact, with the economic outlook somewhat slack, flight to quality interest in gold falling because of falling oil prices, we suspect that a minimally hawkish comment from the Fed this afternoon could easily rekindle the selling pressure in gold. In fact, even if the Fed talks about the US economy remaining strong, that probably won't be enough to offset the negative impact of the Dollar action. We suspect that December gold will attempt to test and perhaps fall below the $618 level and that the pattern of lower highs and lower lows will continue.

SILVER:
SILVER MARKET FUNDAMENTALS: With the gold market showing signs of weakness off a declining flight to quality scenario, it is not surprising that silver is experiencing the same influence. While the trade wants to suggest that the silver market could be underpinned by the even number $12.00 level on the charts, there is also a concern in the trade that too much slowing in the US economy could spark another wave of long liquidation. However, the silver market is supported by recent optimism toward the tech sector in the stock market and from favorable economic readings in the Euro zone this morning. Many in the trade continue to note ongoing divergent action between gold and silver and in the current weak environment in gold, seeing divergence in silver is mostly beneficial. However, in a long term perspective, the silver market is still mostly considered to be a physical commodity market and therefore the outlook for the US economy (from the FOMC meeting minutes later today) will be an important development for the silver trade. With the nearby contract attempting to hold above the $12.00 level, the market does appear to have decent close-in support but considering the potential track in the Dollar and the gold market, the trade has to concede to the idea that the path of least resistance in the silver market this morning is pointing downward. While we doubt that the September silver will close below $11.85, we can't rule out a temporary probe of that level at some point this morning. Aggressive traders can probably take a look at the long side on a dip in the December contract to $12.05, but traders will probably have to risk that position to a close below $11.80.

METALS TECHNICAL OUTLOOK 8/29/2006

COMEX SILVER (DEC) 08/29/2006: A bearish signal was triggered on a crossover down in the daily stochastics. Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. The close below the 18-day moving average is an indication the intermediate-term trend has turned down. The outside day down is somewhat negative. The defensive setup, with the close under the 2nd swing support, could cause some early weakness. The next downside objective is 1179.6. The next area of resistance is around 1244.2 and 1277.6, while 1st support hits today at 1195.2 and below there at 1179.6.

COMEX GOLD (DEC) 08/29/2006: Daily stochastics are trending lower but have declined into oversold territory. The close below the 9-day moving average is a negative short-term indicator for trend. There could be some early pressure today given the market's negative setup with the close below the 2nd swing support. The next downside objective is now at 614.3. The next area of resistance is around 629.3 and 636.0, while 1st support hits today at 618.5 and below there at 614.3.