GOLD:
GOLD MARKET FUNDAMENTALS: With the general outside market influence negative for gold this morning (mostly off the oil market weakness) and gold managing a positive opening bid, it is possible that the focus of the gold market has turned back inward to basic supply and demand fundamentals. In fact, overnight it appears that some value hunting buying was seen and that the December gold contract is attempting to flesh out a support zone on the charts above the $575 level. However, the market seems to have discounted the fact that South African gold production was found to have increased by +0.6% in August, with another gold company "KazakhGold" also managing to boost its 3rd quarter gold production by 27%. On the other hand, it was also noted overnight that Meridian Gold revised its annual gold production downward, from an initial 260,000 ounces to just 235,000 ounces. In a less important but possibly supportive development, a Randgold official, speaking to reporters at the ongoing Gold Conference in Hong Kong, predicted that gold prices were set to rise in the near term off growing geopolitical tensions. While the Randgold official simply parroted back recent ideas that North Korean and Middle East tensions were continuing to support gold prices, he also suggested that Russian inspired safe haven buying of gold might be prompted by actions from the Russian government and that might be a new angle for the bull camp. In a development that might not fully garner the attention of the market today, but may eventually be considered a major negative to gold, is talk that the world's 5th largest gold and copper reserves might have been discovered in Pakistan. In conclusion, from the mix of overnight news (both internal and external) one almost comes away with the impression that a near term gold market rise will have to be made against a bearish fundamental tide. While the technical condition of the gold market seems to be firming, with the growing consolidation around the $575 level, the market hasn't thrown off the general down trend pattern on the charts. As we have already suggested, the fundamental condition isn't exactly supportive and that leaves the technicals in conflict with the fundamentals. In fact, despite the early strength today we are still concerned that gold prices are set to come under pressure as a result of lower oil prices, a narrower US Trade Deficit and recent news that the US is lowering its budget deficit much quicker than expected. In fact, unless there is a dramatic improvement in the macro economic outlook, it is very difficult to argue against another visit down to the October lows.

SILVER:
SILVER MARKET FUNDAMENTALS: The silver market seems to be holding moderately above its recent consolidation lows on the charts and at times seems to be taking its cue from the action in copper instead of gold. However, with the gold market showing positive action overnight, in the face of another new low in energy prices, the bull camp in silver and gold might be presented with more recessionary selling type pressure today and that could mean that positive leadership action from copper will become even more critical to the silver bulls. While a silver producer "Endeavour Silver" has announced a possible 3rd quarter production decline, that news is partially countervailed by news that Meridian Gold had reconfirmed its early silver production forecasts. On the other hand, it is somewhat positive to silver prices, to see recent volume and open interest remain strong, despite a recent pattern of consolidation on the charts, as that would seem to suggest that silver traders remain interested in the market despite a lackluster economic environment. Near term critical support is seen at $11.13 and close-in resistance is noted at $11.53 and the market seems to have a range trade feel to it. However, given the mix of fundamental news this morning, we have to suggest that the path of least resistance in silver remains down, as the slide in oil prices is not easily discounted and the recent Fed dialogue would also seem to favor the bear camp. However, as long as December silver avoids a lower low (by holding above the October 4th low of $10.64) we will remain long term bullish toward silver.

METALS TECHNICAL OUTLOOK 10/12/2006

COMEX SILVER (DEC) 10/12/2006: The moving average crossover down (9 below 18) indicates a possible developing short-term downtrend. Momentum studies are trending higher from mid-range, which should support a move higher if resistance levels are penetrated. The cross over and close above the 18-day moving average indicates the intermediate-term trend has turned up. The market has a slightly positive tilt with the close over the swing pivot. The next upside target is 1169.0. The next area of resistance is around 1150.0 and 1169.0, while 1st support hits today at 1116.1 and below there at 1101.1.

COMEX GOLD (DEC) 10/12/2006: Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The market's close below the 9-day moving average is an indication the short-term trend remains negative. It is a slightly negative indicator that the close was under the swing pivot. The next downside objective is 570.9. The next area of resistance is around 580.1 and 585.4, while 1st support hits today at 572.9 and below there at 570.9.