GOLD:
GOLD MARKET FUNDAMENTALS: With a key brokerage firm economist questioning the Commodities Super Cycle and also predicting that Chinese demand for commodities was set to soften further, the environment for broad based commodity selling is enhanced. In fact, with oil prices giving off signs of falling to new lows and the mostly widely touted Bond Fund manager predicting a recession in the US auto industry in the 4th quarter and also predicting significant weakness in US real estate prices ahead, the bias in the headlines certainly seems to favor the bear camp. With the Press adding to the negative tilt this morning with suggestions that the Funds might be poised to "unwind" more gold positions, there is no shortage of bearish dialogue circulating in the early going. However, there is a positive offset to the bearish flow of news, in a story that suggests Indian buyers might be poised to step forward in the face of cheaper gold pricing. Surprisingly the recent talk of reduced OPEC production and the Iranian sanction situation has taken a back seat and therefore the fortune of gold prices might be mirrored in the equity market action over the coming sessions. Lower equity prices indicate slowing US economic activity and that in turn could push funds and small specs to liquidate long positions in gold. About the only positive headline overnight comes from favorable near term price projections that were once again floated at the Gold & Precious Metals Investment World 2006 conference in Hong Kong. While the December contract has managed to hold above the critical support level of $575, we don't hold out much hope that the market will be able to respect that level over the coming three sessions. In fact, we are surprised that the market hasn't already succumbed to deflationary type selling and fallen directly back to the early October lows of $563.5. The real question for the gold bulls is whether or not physical buyers will step up aggressively on any coming weakness, as that will determine the long term fate of gold prices. In order to throw off the vulnerable status in December gold, might require a rise above $582 this morning.

SILVER:
SILVER MARKET FUNDAMENTALS: So far the silver market has been able to hold together on the charts, despite the fact that the macro economic outlook is deteriorating and the fact that the headline coverage is creating concern in a number of physical commodity markets. With both copper and platinum showing signs of weakness yesterday, the silver market remains vulnerable today but apparently the December contract has found decent chart support around the $11.15 level early today and the market might be expected to find additional psychological support around the even number level of $11.00. On the other hand, overnight news that Peru 2006 silver production would reach 3,400 metric tons (an increase of 200 metric tons) could be seen as a fresh negative. In fact, the increase in supply fro Peru comes in the face of sagging silver demand expectations and that typically isn't a good combination. In conclusion, the bearish items outnumber the bull items and the track in the equity market is hardly providing much support for silver prices ! We see a critical pivot point in December silver at $11.13 this morning but we would not be surprised to see a temporary probe below the $11.00 level and a low today around the $10.86 level. In order to throw off the negative bias today, might require a morning rally back above $11.32. In the end, the path of least resistance is down and a big washout wouldn't be that surprising.

METALS TECHNICAL OUTLOOK 10/11/2006

COMEX SILVER (DEC) 10/11/2006: Momentum studies are rising from mid-range, which could accelerate a move higher if resistance levels are penetrated. The close under the 18-day moving average indicates the intermediate-term trend could be turning down. The swing indicator gave a moderately negative reading with the close below the 1st support number. The near-term upside objective is at 1146.0. The next area of resistance is around 1133.0 and 1146.0, while 1st support hits today at 1111.1 and below there at 1102.1.

COMEX GOLD (DEC) 10/11/2006: Declining momentum studies in the neutral zone will tend to reinforce lower price action. The market's short-term trend is negative as the close remains below the 9-day moving average. The swing indicator gave a moderately negative reading with the close below the 1st support number. The next downside objective is now at 568.8. The next area of resistance is around 580.1 and 584.3, while 1st support hits today at 572.3 and below there at 568.8.