GOLD:
GOLD MARKET FUNDAMENTALS: Apparently the aggressive washout has prompted some physical buying interest overnight and that has helped the gold market (at least temporarily) stem the tide of selling. In fact, the Press this morning is noting increased jewelry buying on the break and that should at least balance sentiment in the early action today. However, as mentioned already the oil market has the feeling of a market that could continue to decline, the outlook for the US and global economy is for generally slowing activity and the Fed has suggested that inflation might show some tapering off. Therefore, the fundamental outlook for gold isn't exactly conducive to a solid bottoming in prices. While the market seemed to get confirmation of a minor Central Bank gold sale yesterday, the amount of the sale was really minimal and therefore the threat of central bank sales could be reduced for the time being but that issue could continue to be an element that hangs over prices. In the early action today, it seems that the trade is content to forge a nominal corrective bounce but the reaction to the US Trade Balance readings could be critical to the direction of prices throughout the rest of the session. In a positive note from China overnight, a poll in that country suggests that Chinese buyers indicated that they would spend around $629 on gold and gold jewelry in the coming year and that strong demand figure was apparently posted despite, or perhaps because of, the pattern of rising gold prices! In fact, while a host of physical commodity prices were under extreme pressure yesterday, the Press this morning seems to be rife with reports of Funds and or Analysts which are expected to show ongoing interest in commodities and that as much as anything, looks to help the gold market stand up to the recent liquidative tilt. It is also possible that the bombing in Damascus this morning provided the gold market with the brunt of the bounce overnight and for that reason it will be important for gold to maintain gains deeper into the session. In the end, the direction of the Dollar might be the lynch pin for gold today. With the gold market $14 per ounce above the prior session's low and the market apparently getting a measure of physical and jewelry demand, the whole idea of bargain hunting buying is given some credence. Certainly the bulk of the fundamental news facing the gold market is bearish but we have to think that the macro economic outlook is about to improve off the persistent slide in oil prices. However, it is probably premature to think that the outlook for the economy is set to improve markedly and therefore the bull camp will need some help from a sagging Dollar off the Trade Balance report this morning. In short, we think that the gold market has the ability to shut off the intense selling pressure today, but only if the September Dollar manages to fall below 85.70 in the first two hours of trade today. The big bull market in gold isn't done, but it could be difficult to restart the rally without a little more upbeat view on the economy. In the end it will be very important to get through today with a close above the $600 level.

SILVER:
SILVER MARKET FUNDAMENTALS: While the silver market has also managed a bounce away from the prior day's significant washout low, the market didn't seem to get as much Press coverage of physical or bargain hunting buying as the gold market. In fact, it could be important for December silver to regain the $11.50 level and it could be even more important for the December contract to hold above the $11.00 level, or that could allow the clearly bearish mentality to regain control over prices. As suggested in the gold market, there is an ongoing concern of global slowing and with the trade again seeing signs of Chinese slowing overnight, the recent broad based liquidation in commodities will probably continue to hang over the silver market. In fact, while there are still general concerns of tightness in silver, the market is currently battling against somewhat negative technicals that apparently have undermined investment interest in silver. Apparently many traders continue to think that silver is watching the direction of copper, equities and oil closely and therefore silver might continue to behave more like a physical commodity, instead of a financial instrument. In order to throw off more of the liquidative tilt, the December silver will have to manage a rise and close above $11.50. On the other hand, seeing the December contract slip back toward the overnight low of $11.23 could easily rekindle the selling pressure, as the outlook for the economy is suspect and the bear camp isn't really threatened by the current fundamental story. There is a chance that the market has bottomed, but we had hoped to see more positive leadership from the stock market or a sharp slide in the Dollar to fully truncate the selling pressure.

METALS TECHNICAL OUTLOOK 9/12/2006

COMEX SILVER (DEC) 09/12/2006: The close under the 60-day moving average indicates the longer-term trend could be turning down. Momentum studies trending lower at mid-range could accelerate a price break if support levels are broken. A negative signal for trend short-term was given on a close under the 9-bar moving average. The gap lower price action on the day session chart is a bearish indicator for trend. The defensive setup, with the close under the 2nd swing support, could cause some early weakness. The next downside objective is now at 1063.5. The market is approaching oversold levels on an RSI reading under 30. The next area of resistance is around 1163.0 and 1219.5, while 1st support hits today at 1085.1 and below there at 1063.5.

COMEX GOLD (DEC) 09/12/2006: Daily stochastics are trending lower but have declined into oversold territory. The market's short-term trend is negative as the close remains below the 9-day moving average. The gap lower price action on the day session chart is a bearish indicator for trend. The market is in a bearish position with the close below the 2nd swing support number. The next downside target is 581.9. Some caution in pressing the downside is warranted with the RSI under 30. The next area of resistance is around 604.9 and 612.6, while 1st support hits today at 589.6 and below there at 581.9.