GOLD:
GOLD MARKET FUNDAMENTALS: With a South African gold producer suggesting this morning that their production continues to run at only 75% of capacity due to a fire in August and the Press continuing to trumpet the idea of surging Indian demand again overnight, it would seem like the bulls are set to control through the opening today. However, in a partially countervailing story overnight, it seems that both Barrick and Gold Fields have indicated that they would not raise bids for certain Gold acquisitions and that might be seen as a partially negative psychological development. On the other hand, the market is also keying in on the fact that the European Central Bank gold sales seemingly ended the annual sales agreement period, with sales holding significantly below the allowable limit and that is assumed to be a trend for the future! With the firm underpin of demand expectations from India, the gold market this morning is also being lifted by ideas that OPEC will step up to slow the slide in oil prices and therefore the posture of the market seems to be improved from a number of angles. In fact, technical traders view the climb back above the critical $600 level overnight as an extremely important development, but maintaining prices above that level is also thought to be a critical line in the sand for many players. Finally reports of a new $100 million Gold Fund (from a major brokerage firm) might add to the already positive bias today, but the real focus of the trade will be on the direction of oil perhaps and perhaps temporarily on the US Durable Goods figures. While regaining the $600 level is certainly helpful to the bull camp, the market will have to prove its capacity by actually managing to close above that level. However, in the near term the Indian demand theme is giving the bull camp the edge, but perhaps only as long as oil prices are tracking upward. We are a little surprised that the recent rise in the Dollar hasn't undermined the gold market more but with a rise above 85.69 in the December Dollar Index, the trade might begin to take a slightly different view of the impact off the currency markets. In the mean time, the bulls look to retain a slight edge, but that edge might have to be re-confirmed by a positive US durable goods number early in the session. While there is little resistance until the $607 level, this market might also have to prove that it can sustain upside action with a positive close!

SILVER:
SILVER MARKET FUNDAMENTALS: After lagging behind the gold market early in the week, the silver market has really accelerated its gains over the last 24 hours. Apparently the improvement in the US economic outlook, soaring global equity prices and talk of rising Indian silver imports were enough for the market to throw off the patently bearish tilt that was in place for most of September. With the 100 day moving average in silver sitting just above the overnight highs at $11.91, even the technicals are signaling a reversal in fortunes for silver. Furthermore, it would seem like the fundamental tilt toward silver has at least temporarily changed and therefore the path of least resistance looks to start out on positive footing again today. In fact, compared to the setup on Tuesday, the silver market is seeing a more significant outside lift from overnight gains in the copper market than was yesterday morning, and yesterday morning the silver market didn't have the benefit of the increasing Indian silver import story! While we acknowledge the near term bullish edge in the silver market, we also think that silver will need a steady diet of supportive developments just to keep the commodity liquidation interest on the sidelines. In other words, the silver needs a favorable Durable Goods reading and more equity gains just to maintain a slow upward track on the charts. As suggested already, the December silver contract has little resistance until the $11.91 level and perhaps even the $12.00 level but we also think that the market can hardly afford to violate extremely critical support just under the market at $11.64.

METALS TECHNICAL OUTLOOK 9/27/2006

COMEX SILVER (DEC) 09/27/2006: Daily stochastics are showing positive momentum from oversold levels, which should reinforce a move higher if near term resistance is taken out. The market's close above the 9-day moving average suggests the short-term trend remains positive. With the close over the 1st swing resistance number, the market is in a moderately positive position. The next upside objective is 1183.8. Consider buying pull-backs since daily studies are bullish. The next area of resistance is around 1169.5 and 1183.8, while 1st support hits today at 1129.5 and below there at 1103.8.

COMEX GOLD (DEC) 09/27/2006: Rising from oversold levels, daily momentum studies would support higher prices, especially on a close above resistance. The market's close above the 9-day moving average suggests the short-term trend remains positive. The close over the pivot swing is a somewhat positive setup. The next upside objective is 604.2. The next area of resistance is around 601.0 and 604.2, while 1st support hits today at 593.2 and below there at 588.5.