GOLD:
GOLD MARKET FUNDAMENTALS: Fortunately the gold market shifted its focus recently away from the evidence of slowing and declining inflation and began to embrace ideas of rising physical demand. With the evidence of slowing coming from inside and outside of the US and low upcoming inflation readings predicted by a US Fed member, the flight to quality or inflationary hope is missing. However, the market has managed to climb back above the critical $600 level this week and has fixated on physical and jewelry demand. Certainly the market is leaning on the evidence of early and aggressive Indian gold buying ahead of the Festival season and therefore the trade might be able to discount the partially negative outside market action this morning and it might also be able to down play the news of Central Bank sales from the Riksbank overnight. Apparently the Swedish Central Bank has indicated that they intend to sell up to 10 tons of gold in the coming sales period that runs from September 27th of 2006 to September 26th of 2007. With the Riksbank already reported to have sold 25 tons during the first two years of the gold sales agreement and now indicating that they will sell another 10 tons, they would seem to have passes the half way market to their 60 ton sale limit over the 5 year period. In short, the Banks might be seen as sellers from the news this morning, even though the Euro zone sales pace was recently found to be running behind its annual allowable sales limit. With reports overnight of Japanese buying, there does appear to be some resistance to aggressive selling pressure, but traders should note that today is the last day of the month and the quarter and rather than tolerate more losses on the month, some players might be entice to liquidate positions at levels that are currently $37 per ounce above the recent lows. However, we suspect that the end of month selling interest will not gather momentum unless the market shows early signs of weakness today! The inability to rise above the 100 day moving average at $613.7 yesterday, the end of month impact and the early weakness might make the market vulnerable to key chart support failures this morning. Initial support is seen at $603.4 in the December contract and to turn around the early negative bias, might require a set of favorable US economic readings, a rise in oil prices and or a rise in the December gold contract above the $610 level in the first two hours of trade. However, the gold market seemed to fight back on several occasions yesterday and a little pulse up early today could change the partial liquidation tide that seems to be in place early.

SILVER:
SILVER MARKET FUNDAMENTALS: While the December contract managed to rise above the 100 day moving average earlier in the mid September recovery, the market seemed to fail at the 200 day moving average yesterday. While the copper market is showing signs of strength today, that market showed a distinct reversal yesterday afternoon and in the process unnerved some silver longs. On the other hand, the Chinese Central Bank overnight actually raised their growth forecasts and reduced their inflation forecasts and that should generally be seen as supportive to silver, copper and platinum, as well as other physical commodity markets. However, with outside market action this morning favoring the bear camp in silver and the market seemingly in a bit of a corrective posture (down 21 cents from the prior sessions highs) the bull camp might need favorable action in the equity market or some decent numbers from the US just to temper the month ending profit taking potential. Typically news of expanding Chinese growth has been enough to lift all the metals, but so far this morning that story doesn't seem to be dominating market sentiment. With the overnight low 23 cents below the high posted on the Thursday surge, the market is back on its heels a bit into the US action. It is end of month and the markets don't seem to be embracing the Chinese growth story and therefore we fear some early selling. However, the silver market will be looking to the gold market for guidance, and the gold market yesterday managed to fight back from several selling bouts for a quasi impressive session. For our part, we would not be comfortable selling silver in the face of up beat Chinese growth forecasts and nearly a new all time high close in the Dow! However, we can't rule out an early dip to a critical pivot point of $11.58 but the failure to hold that level might clear the way for a slide to $11.43.

METALS TECHNICAL OUTLOOK 9/29/2006

COMEX SILVER (DEC) 09/29/2006: Momentum studies are trending higher from mid-range, which should support a move higher if resistance levels are penetrated. 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 1190.6. The next area of resistance is around 1182.8 and 1190.6, while 1st support hits today at 1164.3 and below there at 1153.7.

COMEX GOLD (DEC) 09/29/2006: Momentum studies are trending higher from mid-range, which should support a move higher if resistance levels are penetrated. The cross over and close above the 18-day moving average is an indication the intermediate-term trend has turned positive. If yesterday's gap higher on the day session chart holds, additional buying could develop this session. There could be more upside follow through since the market closed above the 2nd swing resistance. The next upside objective is 616.8. The next area of resistance is around 614.3 and 616.8, while 1st support hits today at 607.5 and below there at 603.1.