GOLD:
GOLD MARKET FUNDAMENTALS: With the ECB raising interest rates and in a sense promising to hike rates again in December and the US Fed working hard on Thursday to countervail the markets hopes of an easing move ahead, it is clear that the monetary influence is partially negative for the gold market. With the commodity selling interest surfacing periodically this week and Wall Street apparently poised to fully embrace the coming monthly US payroll report, the outcome of the employment report is potentially a very critical element for gold. In fact, despite continued bullish cheerleading from Barrick Gold Corp on the price of gold, recent price action has damaged sentiment in the gold market and one can hardly expect prices to stand up under progressively weaker oil prices and sagging economic expectations. Therefore, the gold market might "need" something positive from the US payrolls and it might also need further confirmation from the oil market that some type of fundamental low has been reached in that market. Certainly a decision to implement gradual sanctions against Iran, extreme political wrangling with North Korea, or some renewed turmoil in Nigeria could give gold a temporary lift, but for gold prices to return to their upward track and reach the $700 Barrick Gold Corp. target before the end of the year, would seem to require an environment conducive to growth or an environment that fosters inflation. Historically, it has been very difficult to see inflationary conditions, without forward motion in the world economy. According to a number of market analysts and some Press reports this morning, the recent gold correction might be close to ending, but fulfilling that expectation might require something very positive from the numbers this morning. Adding another element of potential pressure to prices this morning is a story out of Europe that suggests European Central Banks might have stepped up just ahead of a recent deadline and sold an extra 100 tonnes of gold from reserves and while that isn't a perpetual negative story, that would certainly discourage some bulls that have been expecting Central banks to hold back on Reserve sales. In short, the economic ante is perhaps even higher into the US payroll report this morning! We see several outside forces that suggest the gold market is under threat of more liquidation pressure. However, we have to wonder just how much support the market might get next week when the Asian markets are full engaged and we also have to wonder if the US numbers this morning will be able to contribute to a bottoming. However, given the way the markets are leaning, we would have no patience in the event that the unemployment rate climbs or in the event that non farm payrolls fail to gain 110,000 jobs. In short, support is a full $10 below the early trade and the last COT report probably leaves the gold market moderately net spec long and that would seem to require a defensive posture. In fact, without a good US Payroll reading or a recovery in oil prices today, we would think that December gold still has the potential to test the June lows of $557.

SILVER:
SILVER MARKET FUNDAMENTALS: While the silver market is still 48 cents above this week's low and has shown the capacity to bounce over the last 2 1/2 sessions, it is clear that the market is presented with a partially suspect fundamental condition. In addition to a rate hike from the ECB and a bit of confusion on future US Fed policy, the trade continues to see concerning dialogue toward the US housing sector and weakening CEO confidence from a Business Conference survey. However, it is possible that silver and copper prices were actually held back this week, because of sustained holiday action in China. It is also possible that slack scheduled economic numbers from the US has countervailed the potential support that could have been seen in silver from the string of new highs in the equity market. In conclusion, there are some positive economic expectations in the marketplace, but those views are being periodically challenged by the numbers. Just as in the gold market, the silver market might need some help from the numbers this morning, just to keep the recent dominance by the bear camp in check. While the silver market probably deserved a bit of a bounce off the idea that OPEC might not tolerate more declines in oil prices, that focus really doesn't seem to be an element that is capable of driving silver prices persistently higher. In fact, silver and copper have been tracking in sync recently and that is probably the result of their physical commodity demand reliance and that in turn suggests that the payroll reading today is extremely important to the near term direction of prices. In our opinion, the numbers this morning will have to be judged as "good" just to avoid a bit of renewed selling and given the flow of scheduled numbers over the last month, one doesn't get the feeling that the numbers will be on the north side of neutral. Like gold, silver could easily retest this week's lows and could also end up making a good bid for the September lows if the numbers are actually discouraging.

METALS TECHNICAL OUTLOOK 10/6/2006

COMEX SILVER (DEC) 10/06/2006: Momentum studies trending lower at mid-range could accelerate a price break if support levels are broken. The close below the 9-day moving average is a negative short-term indicator for trend. A positive setup occurred with the close over the 1st swing resistance. The next downside target is 1082.1. The next area of resistance is around 1120.0 and 1134.0, while 1st support hits today at 1094.1 and below there at 1082.1.

COMEX GOLD (DEC) 10/06/2006: Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The close below the 9-day moving average is a negative short-term indicator for trend. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The next downside target is 568.2. The next area of resistance is around 579.1 and 582.5, while 1st support hits today at 571.9 and below there at 568.2.