GOLD:
GOLD MARKET FUNDAMENTALS: The rather slack outlook for the economy continues to prompt long liquidation and in some cases might be emboldening fresh sellers. With the US numbers continuing a pattern of weakness and the precious metals markets apparently using the direction of oil prices and not the direction of equity prices as their future guide, it is difficult to markedly alter recent bearish sentiment. In fact, the fundamentals in the energy complex seem to be firmly entrenched in the bear camp and therefore it might be incumbent on the gold bulls to get some type of offset in the form of a positive US factory Orders release this morning. While the talk of increased physical demand is probably lurking just under the surface, those claims seem to have been quieted somewhat in the face of the massive gold price slide this week. However, if there is physical demand waiting to step forward, one would think that markedly lower flat pricing would inspire that interest to step forward. Therefore, it could be extremely important for the December contract to manage to hold above the September low of $576.8, just to give off the impression of a technical low. In the near term, the $576.8 level is thought by the trade to have a chance of holding, but a slide below $59.57 in December crude oil, or a rise above 85.81 in the December Dollar might be enough outside market force to rekindle another selling wave in gold. As suggested already, the market seems to have found some form of support on the charts just above the $576 level but unless the macro economic outlook brightens, the threat of liquidation will hang over prices. In fact, until sharply lower oil prices translate directly into sustained and significant equity market gains, the liquidative commodity tilt will probably remain in place. Unfortunately the big range down washout yesterday came on huge volume and that would temporarily confirm the control of the bear camp. Traders might be lucky to see a bounce to $587 in the December contract and the odds of another new low for the move this week remains very high.

SILVER:
SILVER MARKET FUNDAMENTALS: With the gold market periodically under attack, the silver market could also remain suspect. However, in the early overnight action the gold market did manage to bounce and the copper market was showing some rather impressive gains and that might leave the silver market in a relatively better position than was seen throughout the action Tuesday. As suggested in the gold comment this morning, the silver market probably needs to see a moderate improvement in economic expectations, or the recent selling dominance could be difficult to dislodge. However, with the most recent positioning report showing only a moderate net spec long positioning in silver and the market at the overnight lows, 66 cents below the level where the last positioning report was measured, it is possible that a large portion of the weak handed spec long position has already been forced from position. On the other hand, the silver market will need some outside market help, or a distinct wave of fresh bargain hunting buying to effectively turn the down current trend pattern in prices around. From a fundamental perspective, to get outside market help for the silver bulls, would seem to require a sharp rise in the equity market, stronger scheduled numbers or a sustained bounce in oil prices. Like the gold market, silver saw a rather significant up tick in volume on the big decline yesterday and that would seem to confirm the markets interest in the downside. However, with silver still holding significantly above the $10.81 consolidation lows and moderately above the September 15th spike low of $10.57, one can't rule out some more near term declines. While we think it is wrong to factor in an end of the growth cycle in the US and global economy, the markets really haven't seen evidence that lower oil prices are serving to rekindle economic activity yet and therefore more choppy to lower price action is possible, until the market manages to improve its expectations. In short, we can't rule out more minor declines but the $10.60 level should be considered a potential long entry point for aggressive traders.

METALS TECHNICAL OUTLOOK 10/4/2006

COMEX SILVER (DEC) 10/04/2006: Stochastics are at mid-range but trending higher, which should reinforce a move higher if resistance levels are taken out. The close under the 18-day moving average indicates the intermediate-term trend could be turning down. The gap lower on the day session chart is bearish and puts the market on the defensive. The defensive setup, with the close under the 2nd swing support, could cause some early weakness. The near-term upside target is at 1149.5. The next area of resistance is around 1123.0 and 1149.5, while 1st support hits today at 1086.1 and below there at 1075.5.

COMEX GOLD (DEC) 10/04/2006: Momentum studies are rising from mid-range, which could accelerate a move higher if resistance levels are penetrated. The market back below the 18-day moving average suggests the intermediate-term trend could be turning down. The gap lower price action on the day session chart is a bearish indicator for trend. There could be some early pressure today given the market's negative setup with the close below the 2nd swing support. The next upside objective is 598.7. The next area of resistance is around 588.5 and 598.7, while 1st support hits today at 574.5 and below there at 570.8.