GOLD:
GOLD MARKET FUNDAMENTALS: Apparently the Bernanke dialogue sparked concerns of a significant slowing threat in the US. Surprisingly the prospect of steady or perhaps even an easing of rates in the US (in the event of significant slowdown) isn't something that benefits the gold market. In short, the deflationary or bearish commodity view remains in vogue and even a stellar series of gains in the equity market is being discounted. In the action this morning, gold prices are showing a minor bounce but the overnight news flow isn't particularly promising. In fact, oil prices are weak again this morning and are still only seeing weak and mostly unofficial periodic hints of a production cut. While the world's largest miner, Barrick is still predicting a return to the $700 level before the end of the year and the Press is also carrying stories on the start of a new Singapore gold fund next week, the bullish fundamentals are not being fully embraced by the trade. Intelligence from the US suggesting that North Korea is physically preparing for another missile test is another bullish development that was and is being mostly discounted by the gold trade. Overnight Dubai gold imports are expected to climb as a result of the recent sharp slide in prices but that is really the only positive physical demand story circulating, which is surprising when one considers the frequency of physical demand stories in the Press last week. While the Press has trumpeted the idea that a Commodity-wide sell off accentuated the selling in gold yesterday, it should be noted that all the gains markets yesterday exploded for rather significant gains and therefore the argument that a "major" and "all encompassing" liquidation wave in commodities is underway, is somewhat inaccurate. While the Press continues to toss around ideas of an OPEC production cut and that could help oil bottom and in turn take the pressure off gold, the bias in the gold market seems to remain down. However, while the concerns toward the US economy off the Fed are to be acknowledged, the threat of sustained slowing would seem to be downplayed significantly by the persistent strength in equity prices and by the idea that the Fed is aware of the potential for too much slowing! On the other hand, ongoing classic technical vulnerability in gold and the fact that the gold market might still be net spec long a moderate amount, probably leaves the path of least resistance pointing downward. However, traders that get short December gold below $575 would seem to be playing for the lower 5% or 10% of pricing. On the other hand, those that are still long gold should realize that there is still enough downside risk to use options as a hedge.

SILVER:
SILVER MARKET FUNDAMENTALS: In the action yesterday, the silver market lagged behind the early gold rally and then lagged behind the gold market on the big washout. Certainly the silver market continues to feel the weight of the slowing threat and certainly the commodity liquidation wave is indirectly undermining silver market sentiment, but around the lows Wednesday, December silver was a significant 84 cents below the level where the last positioning report was measured and that should mean that the spec long positioning is declining rapidly. However, the trade continues to suggest that the technical setup in silver is vulnerable and with the fundamental track fraught with talk of slowing, declining inflation and less investment interest for gold and silver, the silver market would seem to have more bearish information than bullish. However, the metals markets are showing a bit of a bounce this morning and the copper market in particularly is showing something more than just a simple technical bounce in the overnight action and that might give silver bulls some badly needed confidence. Until the persistent gains in the equity market actually serves to improve the macro economic view, the silver market might remain under a cloud of suspicion. In the early action today December silver sits 26 cents above the prior day's lows and with the market starting to embrace some of the positive spin from the recent Fed dialogue and there are some signs that OPEC might be poised to defend against lower oil prices, it is possible that the silver market will attempt to forge a consolidation on the charts. However, we just don't see the conditions yet, that would prompt us to call for a major bottom in silver prices, especially since the silver market doesn't seem to care about ongoing strength in equity prices. In short, support of $10.76 might hold today but rallies might be limited to $11.06.

METALS TECHNICAL OUTLOOK 10/5/2006

COMEX SILVER (DEC) 10/05/2006: A bearish signal was triggered on a crossover down in the daily stochastics. Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. The market's short-term trend is negative as the close remains below the 9-day moving average. The close below the 1st swing support could weigh on the market. The next downside objective is now at 1041.5. The next area of resistance is around 1100.0 and 1123.5, while 1st support hits today at 1059.1 and below there at 1041.5.

COMEX GOLD (DEC) 10/05/2006: The daily stochastics have crossed over down which is a bearish indication. Stochastics trending lower at midrange will tend to reinforce a move lower especially if support levels are taken out. The close below the 9-day moving average is a negative short-term indicator for trend. The defensive setup, with the close under the 2nd swing support, could cause some early weakness. The next downside target is 548.5. The market is approaching oversold levels on an RSI reading under 30. The next area of resistance is around 577.8 and 592.8, while 1st support hits today at 555.6 and below there at 548.5.