GOLD:
GOLD MARKET FUNDAMENTALS: Apparently the positive action in the Dollar prompted waves of longs to exit gold positions this week and with the Dollar still technically in an upside breakout mode this morning, it is not surprising to see the gold under renewed selling pressure this morning. Apparently a portion of the long Funds were prompted to liquidate partly because of the Dollar action but also because of renewed concerns that the Fed might have to over-tighten just to keep wage price inflation in check. In other words, some of the recent selling might have been the result of deflation fears and perhaps even fears of slowing physical demand ahead. With the all of the precious metals trading down in sync recently, even bargain hunting buyers are discouraged from entering the market. While the news of rising gold production in Peru in the month of June is old news, the Press continues to play up that negative theme due to a lack of fresh alternative fundamental news. Also adding into the slightly negative supply theme this week, was a series of stories of rising gold production in South Africa. Therefore, the gold market is being confronted with bearish news from both the supply and demand fronts, with the demand function being threatened from declining investment interest and fears of declining physical demand and that simply gives the bear camp confidence. Despite late breaking news this morning of a significant mine fire in Russia overnight, the gold market doesn't seem to be supported from the potential for a minor supply setback. With another new low for the move and little fundamental news flow to countervail the liquidation efforts it is possible that December gold is destined to retest the late August spike low of $615.5. Those that are long December gold, short a call and long a put should watch the short call position for an exit today, leaving the long futures and long put in position until the point where the fundamental news flow improves. In order to throw off the bear tilt currently dominating sentiment, the December gold might have to manage a close above $625.

SILVER:
SILVER MARKET FUNDAMENTALS: Despite the fact that gold is the main culprit in the current selling wave, it is clear that silver is being lumped into the same category as gold. In fact, the majority of the recent selling in the precious metals markets seemed to germinate from the upside breakout in the Dollar and that should have had a less disastrous impact on silver. However, the silver market was given additional pressure by the concern of over-tightening by the US Fed and partly because of the sharp slide in the equity markets this week, as that also hints at the potential for slowing physical demand. While the Press is carrying stories about the silver market seeing some value hunting buying interest, the charts in silver don't seem to be giving off bullish signals in the early going today. On the other hand, the US equity market is showing some minor bounce today and seeing that early trend extend throughout the session might be something that serves to check up silver prices. Trade talk suggests that the next support zone in December silver is seen down at $12.34 and then $12.15 off classic chart analysis. With gold giving off signs of additional liquidation this morning and December silver barely falling down to the middle of the August consolidation zone overnight there really isn't much evidence for a quick and solid bottoming. However, we do think that silver will bottom ahead of gold and that a decline to $12.15 might be necessary just to bring in enough fresh speculative buying to counter the current liquidation interest. In the end, the silver market needs a clear cut improvement in the macro economic outlook to bottom and therefore traders should watch the action in the US equity market for a sign of a low today.

METALS TECHNICAL OUTLOOK 9/8/2006

COMEX SILVER (DEC) 09/08/2006: A bearish signal was triggered on a crossover down in the daily stochastics. Stochastics turning bearish at overbought levels will tend to support lower prices if support levels are broken. The close below the 9-day moving average is a negative short-term indicator for trend. The gap down on the day session chart is bearish with more selling pressure possible today. The market is in a bearish position with the close below the 2nd swing support number. The next downside objective is now at 1225.1. The next area of resistance is around 1293.0 and 1319.0, while 1st support hits today at 1246.1 and below there at 1225.1.

COMEX GOLD (DEC) 09/08/2006: The market back below the 60-day moving average suggests the longer-term trend could be turning down. Stochastics are at mid-range but trending higher, which should reinforce a move higher if resistance levels are taken out. The close under the 18-day moving average indicates the intermediate-term trend could be turning down. The gap down on the day session chart is bearish with more selling pressure possible today. The defensive setup, with the close under the 2nd swing support, could cause some early weakness. The near-term upside target is at 643.5. The next area of resistance is around 633.1 and 643.5, while 1st support hits today at 616.7 and below there at 610.6.