GOLD:
GOLD MARKET FUNDAMENTALS: Despite a couple of negative fundamental developments this morning, the gold market is positively biased in the early trade today. In fact, the gold market seems to have totally discounted the fact that Chinese gold production was found to have increased by 6.3% in the first half of 2006 and it has also discounted news that a potential supply disruption event at a Peru gold mining operation was averted with a settlement overnight. In short, it seems like a portion of the overtly bearish tilt present at the start of the week, has been reversed because of the less hawkish US Fed and perhaps because the persistently negative impact from the August sharp slide in oil prices has started to shift and is now serving to brighten macro economic expectations. In another recent negative story, the World Gold Council has suggested that Middle East gold demand in the second quarter declined by 25% and also suggested that excessive price volatility was probably the cause of the reduction in gold demand. While the Press is out this morning with suggestions that geopolitical anxiety is still in the process of calming down, that opinion seems to totally discount the potential that the actual UN/Iranian nuke deadline of August 31st will bring about an escalation of tensions. In fact, the August 31st deadline might actually be the source of the overnight buying interest in gold, but the Press might end up being correct in their assessment that the UN deadline will come and go without a significant development on the Iranian sanctions issue. In conclusion, the bear camp seems to have a number of elements in their favor, but the bull camp is apparently capable of re-gaining temporary control over prices. With the tight coiling pattern on the charts, the fundamentals mostly negative and the Dollar higher this morning, we would suggest that short term traders use the overnight bounce to get lightly short for more downside work ahead. Eventually lower oil prices could revive the economy, but in the near term, lower oil prices seems to mean less uncertainty, less inflation and less flight to quality interest in gold. In short, those that are short call and long puts against long futures positions still need the options protection against further potential upcoming declines. Initial support is seen at $615.5 and then again down at $610. In order to alter our partially bearish near term outlook, might require a rally in December gold back above $627.

SILVER:
SILVER MARKET FUNDAMENTALS: While the silver market doesn't seem to be overly focused on the big picture macro economic outlook for the US economy, it does seem like silver and copper prices were benefited as a result of the less hawkish Fed spin on Tuesday afternoon. Furthermore, while the recent slide in oil prices has generally undermined the precious metals markets (as flight to quality and inflation longs were forced from position) it is possible that persistent declines in oil could begin to benefit silver, from the hope that lower oil prices will rekindle the global economy and in turn improve physical investment and industrial demand for silver. In the mean time, the market is somewhat vulnerable from a technical perspective, as the nearby contract has been unable to hold above a series of widely followed technical indicators and the trade is probably still aware of the moderate ongoing spec and fund long positioning in silver. In addition to concern over the technicals, the silver market is also presented with some fresh demand concerns this morning, as Japan documented a rather sharp 33% decline in silver imports in the month of July, but that negative reading is partially offset by the fact that July 2006 imports were actually 26% above the prior year's July imports. Like gold we remain long term bullish toward silver but the near term setup seems to favor the bear camp. In addition to adverse periodic currency market action, the silver market has periodically fretted over the prospect of over tightening by the US Fed. With the Fed threat somewhat downgraded, the silver market should benefit but as long as the overall macro economic outlook is cautious, it is unlikely that the industrial metals are going to spring higher simply because the Fed is going to give the US economy a bit of room. In the end, we fear a re-test of the lows forged yesterday but we also can't rule out temporary rallies to $12.50 basis the December contract.

METALS TECHNICAL OUTLOOK 8/30/2006

COMEX SILVER (DEC) 08/30/2006: The downside crossover (9 below 18) of the moving averages suggests a developing short-term downtrend. Momentum studies trending lower at mid-range could accelerate a price break if support levels are broken. The market's short-term trend is negative as the close remains below the 9-day moving average. The upside daily closing price reversal gives the market a bullish tilt. The close over the pivot swing is a somewhat positive setup. The next downside objective is now at 1190.1. The next area of resistance is around 1250.2 and 1262.1, while 1st support hits today at 1214.2 and below there at 1190.1.

COMEX GOLD (DEC) 08/30/2006: Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The market's close below the 9-day moving average is an indication the short-term trend remains negative. It is a slightly negative indicator that the close was under the swing pivot. The next downside objective is 609.5. The next area of resistance is around 624.3 and 630.4, while 1st support hits today at 613.9 and below there at 609.5.