GOLD:
GOLD MARKET FUNDAMENTALS: While the Press continues to trumpet the prospect of supportive physical demand, some international jewelry buyers were thought to be balking overnight and that has allowed the soft economic view to dominate gold prices. Apparently softer than expected ISM manufacturing readings yesterday rekindled widespread concern of slowing and that has apparently pushed back physical, investment and speculative buyers. Therefore, the overnight talk from the World Gold Council that predicted lower volatility in gold prices is currently of little supportive capacity for the market. In fact, the market also seems to have discounted the potential support from predictions that Central Bank Gold sales will continue to slow ahead. With crude oil falling almost another $1 in the early action today (and those prices back within striking distance of the recent lows) the gold market is certainly confronted with conditions similar to the first half of September! In fact, some players pointed to the employment Index decline within the ISM report yesterday, as a sign that even US employment figures might be set to soften on Friday morning and that could give the Challenger Layoff report early this morning added importance. It would seem that the gold market has shifted back into the physical commodity mode and in the near term, a number of commodities seem to be falling back under the "spell" of a slower economy. With the macro economic outlook undermining the market, oil prices soft and the scheduled economic report slate today probably unable to alter the early negative setup, it is likely that gold prices are set to slide back toward the September consolidation lows. While we are skeptical of a tight ongoing correlation with oil prices in the near term, we suspect that gold will have little choice but to follow oil down. In fact, unless the US payroll report at the end of the week countervails the slowing threat, we doubt that reports of physical demand will alter the downward pattern in prices. One might expect the gold market to recoil periodically in overnight international market action, as Indian buyers and perhaps even Chinese buyers step up with bargain hunting buying. In the mean time, we suspect that December gold has the potential to reach $587 and potentially $578 in the event that the numbers remain soft all week long.

SILVER:
SILVER MARKET FUNDAMENTALS: With the rest of the metals markets under pressure, the macro economic outlook weakening and the physical metals markets not directly benefiting from the renewed slide in oil prices, it would seem like the bear camp has a distinct edge in silver. With the silver market caught in the middle of the wide range defined by the 100 and 200 day moving averages, there would seem to be little to prevent the market from significant waffling. However, the initial bias in prices today seems to favor the bear camp and a large portion of the selling impetus appears to be coming from fears of US slowing. In fact, with the US equity market also showing corrective action, the silver market is not only undermined because of soft scheduled numbers, but it might also be under pressure as a result of the psychological pressure generated by a slide in stock prices. The 200 day moving average in December silver comes in this morning at $11.30 and that could be an early target for the market. Even the copper market is under a bit of heavy pressure this morning and that would seem to suggest that most of the usual suspects are as coming in as a negative for silver prices. While December silver might find initial support at the $11.30 level, under an extension of slack macro economic conditions, weak oil prices and a sliding equity market, one can't rule out a slide to $11.13 and perhaps even numbers at $11.00 at some time this week. Unfortunately, silver is a physical commodity and in the near term, physical commodities are not seeing a consistent flow of buying interest. We would expect some sort of value hunting buying wave around the $11.13 level, but periodic physical buying won't actually serve to improve the macro economic outlook.

METALS TECHNICAL OUTLOOK 10/3/2006

COMEX SILVER (DEC) 10/03/2006: The upside crossover of the 9 and 18 bar moving average is a positive signal. Momentum studies are trending higher from mid-range, which should support a move higher if resistance levels are penetrated. A positive signal for trend short-term was given on a close over the 9-bar moving average. It is a mildly bullish indicator that the market closed over the pivot swing number. The next upside objective is 1192.9. The next area of resistance is around 1176.8 and 1192.9, while 1st support hits today at 1151.3 and below there at 1141.9.

COMEX GOLD (DEC) 10/03/2006: The moving average crossover up (9 above 18) indicates a possible developing short-term uptrend. Momentum studies are trending higher from mid-range, which should support a move higher if resistance levels are penetrated. The close above the 9-day moving average is a positive short-term indicator for trend. It is a slightly negative indicator that the close was under the swing pivot. The next upside target is 611.6. The next area of resistance is around 606.9 and 611.6, while 1st support hits today at 599.7 and below there at 597.3.