GOLD:
GOLD MARKET FUNDAMENTALS: It is a little surprising to see gold tracking higher this morning in the wake of various forecasts from Gold Fields Mineral Services, as the widely respected consultancy group suggested that 1st half scrap gold supply jumped by as much as 50%. However, GFMS also suggested that mine production of gold actually fell 1.5% in the first 6 months of 2006 and perhaps even more importantly, GFMS predicted that gold would still be able to return to $700 by the end of the year, on the back of renewed investment interest. However, the GFMS outlook also noted a 30% decline in jewelry demand in the first half and on balance the GFMS outlook seems to justify at least a portion of the September washout in prices. One could also conclude that the failure to see renewed bargain hunting and investment buying would mean that the Gold Field Mineral Services forecast generally favors the bear camp. It should also be noted that the Gold Survey (Update 1) published by GFMS also indicated that De-Hedging continued to surge as a result of the Barrick "one time" buy back of hedges and that should leave implied supply of gold in a contractionary condition. In another positive note, the UK economy continues to throw off impressive economic stats and with the US equity market also hinting that lower energy prices are potentially improving macro economic sentiment, one could conclude that the gold market environment is becoming less conducive to selling interest. In the end, a progressive improvement in the US economy is thought to be supportive to gold, while contractionary, recessionary or soft landing fears will favor the bear camp! While the December gold contract has managed to hover migrate back toward the $600 level on the charts, the market is still below several critical longer term moving averages. We might note that open interest rose on the most recent wave down but that volume over the last couple sessions has failed to confirm the downside action. On the other hand, the charts seem to remain vulnerable and Asian traders overnight seemed to maintain a bit of a negative bias and that makes any failure of the $594 level an extremely critical development today. Without a sharp additional decline in energy prices and a commensurate sharp rise in equity prices, it is difficult to call this week's lows a sustainable low.

SILVER:
SILVER MARKET FUNDAMENTALS: It is impressive that December silver has been able to hold above a closely watched long term moving average. With the rebound in a number of metals and raw materials prices this morning and the US equity market generally giving off optimistic views toward the future, the bull camp does seem to be getting a bit of help from the macro economic view. In short, it does seem like silver is attempting to track improving physical commodity factors and the prospect of an improvement in the economy, but that the silver market is still periodically being undermined by the action in gold and the Dollar. In fact, a number of traders think that silver would have bounced aggressively off the $11.00 level yesterday, if the gold market action this week hadn't been so choppy. However, with both copper and platinum prices showing early gains today, that might give the silver market a little added bullish capacity against the meanderings of gold. As mentioned early in the week, the silver market, after the recent $1.39 per ounce break, might have the least spec and fund "long" positioning of the precious markets and that could temporarily mitigate fresh selling interest in the market. With the 200 day moving average in the December contract coming in at $11.14, the market mostly holding above that moving average and a number of short term technical indicators also hinting at a bottoming, the silver market could have a near term upward bias. As suggested before, the stock market seems to be improving the attitude toward silver and further improvements in that area, might actually facilitate renewed investment interest in silver. Therefore, the odds of respecting the $11.00 support level look good for the coming sessions but we would not suggest that the all clear has been signaled yet in the wake of the massive September washout. However, we do think that the spec and fund long has been mostly liquidated and that the risk of being long has declined substantially.

METALS TECHNICAL OUTLOOK 9/14/2006

COMEX SILVER (DEC) 09/14/2006: The downside crossover of the 9 and 18 bar moving average is a negative signal. 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 upside daily closing price reversal gives the market a bullish tilt. It is a slightly negative indicator that the close was under the swing pivot. The next downside target is 1091.1. Some caution in pressing the downside is warranted with the RSI under 30. The next area of resistance is around 1136.0 and 1155.0, while 1st support hits today at 1104.1 and below there at 1091.1.

COMEX GOLD (DEC) 09/14/2006: Momentum studies are declining, but have fallen to oversold levels. The close below the 9-day moving average is a negative short-term indicator for trend. The daily closing price reversal up is a positive indicator that could support higher prices. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The next downside objective is now at 585.3. Some caution in pressing the downside is warranted with the RSI under 30. The next area of resistance is around 601.5 and 606.2, while 1st support hits today at 591.1 and below there at 585.3.