GOLD:
GOLD MARKET FUNDAMENTALS: While the Press is talking up the idea of rising seasonal demand in Asia, there are a number of stories circulating that suggest the funds sold into the sharp gold rally on Tuesday and that might lead some to conclude that the Tuesday high was a temporary top. Overnight the Asian Development Bank pegged Chinese 2006 GDP growth to be +10.4% up from a prior forecast of +9.5% and they also raised 2007 Chinese GDP expectations to +9.5% from a prior +8.8% reading and that positive news seems to have dovetailed with or immediately followed the recent sharp broad based rise in all the metals markets. Therefore, the metals do seem to be getting a positive lift from the expectation of favorable macro economic conditions. Furthermore, the Asian Development Bank also raised Indian 2006 GDP growth to +7.8% from +7.6% and therefore it would certainly seem like growth in the world's two most populous countries is set to outperform expectations and that should raise both physical and investment interest for the metals markets. However, traders will probably take a long look at the US Beige Book release this afternoon for indications on upcoming US Fed policy, but given recent data, it would seem that the market is already expecting the US Fed to pause in the next meeting and therefore seeing the Beige Book confirm that stance today might not markedly add to the recent bullish bias in metals prices. While funds reportedly increased their short interest in gold on the current rally, it certainly seems like the gold market is absorbing the selling rather well but it is also clear that the gold market is becoming more dependant on a positive forward economic outlook. It should be noted that December gold managed to rise above a critical down trend channel resistance line with the action yesterday and that line has seemingly become support today at $640.1 basis the December contract. In fact, the favorable Asian Development Bank growth projections for China should be enough fundamental news to underpin the recent rally. However, given the sharp compacted nature of the rally yesterday, one could logically expect to see some a minor corrective action before the market attempts to make the $650 resistance zone, a solid support zone. That $640 level seems to be a solid support point from a number of technical measures today and therefore that level should be decent support in today's action.

SILVER:
SILVER MARKET FUNDAMENTALS: Clearly the silver market lagged behind the rest of the metals complex on Tuesday and that action might leave the market less vulnerable to nominal corrective action today. However, the silver market was partially undermined as a result of the news yesterday that showed Peru silver output for June rising by 8%. On the other hand, with the market seeing a fresh wave of investment buying interest recently, the potential for rising supply is at least partially discounted. In fact, the theme of the bull camp seems to be that rising investment and physical demand continues to strip down available silver supply and that in turn leaves the market in a tightening posture. So far, the silver market hasn't seen the merger and buyout interest that is present in the gold market and with the silver market lagging behind gold yesterday, it also seems like the fund buying interest in silver is also lagging behind gold. On a positive note, the Press didn't seem to detect fund selling interest in silver around the highs on Tuesday and that might reduced the amount of technical back and fill in the silver in the coming sessions. Apparently the $12.97 level has become a critical pivot point on the charts and with the market giving up almost all of the gains from the prior session one almost gets the sense that the high of $13.23 was a temporary top. On the other hand, the silver market was apparently lifted by outside market forces and perhaps the potential for an improvement in the global economy, as a result of progressively lower oil prices and that should help the market hold above the August consolidation zone of $12.00 to $12.72.

METALS TECHNICAL OUTLOOK 9/6/2006

COMEX SILVER (DEC) 09/06/2006: Rising stochastics at overbought levels warrant some caution for bulls. A positive signal for trend short-term was given on a close over the 9-bar moving average. The gap upmove on the day session chart is a bullish indicator for trend. It is a mildly bullish indicator that the market closed over the pivot swing number. The next upside target is 1344.3. The next area of resistance is around 1326.5 and 1344.3, while 1st support hits today at 1301.5 and below there at 1294.3.

COMEX GOLD (DEC) 09/06/2006: The major trend could be turning up with the close back above the 40-day moving average. Momentum studies are rising from mid-range, which could accelerate a move higher if resistance levels are penetrated. The cross over and close above the 18-day moving average indicates the intermediate-term trend has turned up. Follow through buying looks likely if the market can hold yesterday's gap on the day session chart. The market has a bullish tilt coming into today's trade with the close above the 2nd swing resistance. The near-term upside objective is at 654.0. The next area of resistance is around 651.1 and 654.0, while 1st support hits today at 642.7 and below there at 637.1.