GOLD:
GOLD MARKET FUNDAMENTALS: While a number of large Brokerages are standing by their forecasts of $700 gold again by the end of the year and those forecasts seem to relay on support from a sagging Dollar and recovering oil prices, the outside market action this week hardly emboldens those views. In fact, the gold market might have seen more support this week from flight to quality fears associated with the North Korean war threats and from the sharp rise in the equity market, than it has from the safe haven or inflationary psychology. The Hong Kong Gold Conference continued to throw off bullish dialogue overnight, as would be expected from a biased crowd, but again those bullish forecasts acknowledged the potential for selling off sagging oil prices. In fact, one of the largest Brokerage firms in the world overnight reiterated its $700 price target by the end of the year, but that brokerage also suggested that gold could still decline another $30 per ounce in the near term, due to technical failures on the charts. In short, the bull camp seems to be long term optimistic, but the classic outside market forces simply aren't convincingly lining up in the right direction. Internally, it is possible that gold manages to get enough indirect support from the positive global equity market action, that ongoing deflationary action in the oil market will be mostly discounted. In the end, watch points for gold today are a December crude oil trade below $59.19 and or a December Dollar trade back above 86.85. One would think is important to the bull camp to see some form of positive economic news from the scheduled US report slate this morning. While the market is doing a good job of coiling above the $575 level and a Gold Conference in Hong Kong has suggested that $575 gold is cheap, the market isn't necessarily supported by a long list of positive fundamentals. In fact, in addition to entrenching the idea of positive forward momentum in the US and world economy, the gold market also needs some sign that oil prices will be able to respect the recent lows. However, unless the US economy gathers momentum, the economy might need to see even lower oil prices, just to help the US economy up-shift and in the process turn the negative commodity bias around. In the mean time, we leave the gold market in a liquidation watch mode, but would strongly suggest that a decline to the June lows around $557 should be considered an extremely solid value zone. In the near term, the odds of holding above the October lows has improved but the odds of a sub $575 December gold price, in the coming sessions is still pretty high.

SILVER:
SILVER MARKET FUNDAMENTALS: Like the gold market, the silver market is coiling well above its recent consolidation support and at times seems to be benefiting from the strength in the equity market. Periodically the silver market is also looking to the action in the copper market for guidance and early this morning the copper market is showing some minor strength. Certainly silver will generally track the direction of gold, but in the event that equities soar and gold shows some weakness, it is possible that silver will be able to avoid a portion of the gold associated pressure. However, in the event that copper and equities fail to provide indirect support to silver prices, that could leave the December contract vulnerable to setbacks to close-in consolidation support of $11.19. In short, the silver market focus is heavily dependant on a positive economic view and therefore the market should pay attention to the flow of US economic readings this morning and perhaps even more importantly to the action in the US equity market. Close-in support in December silver is seen at $11.33, with resistance today seen at $11.54. One might suggest that the charts have an upward bias because of the pattern of higher lows this week, but that argument is also suspect because of the lack of higher highs this week. In short, we think the heavy liquidation threat in silver has declined but we still don't get the sense that bull camp is fully capable yet of mustering a sharp upward thrust.

METALS TECHNICAL OUTLOOK 10/13/2006

COMEX SILVER (DEC) 10/13/2006: Stochastics are at mid-range but trending higher, which should reinforce a move higher if resistance levels are taken out. The close above the 9-day moving average is a positive short-term indicator for trend. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The next upside objective is 1160.9. The next area of resistance is around 1150.8 and 1160.9, while 1st support hits today at 1125.3 and below there at 1109.9.

COMEX GOLD (DEC) 10/13/2006: Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. A positive signal for trend short-term was given on a close over the 9-bar moving average. The daily closing price reversal up is a positive indicator that could support higher prices. Market positioning is positive with the close over the 1st swing resistance. The next downside objective is now at 571.1. The next area of resistance is around 584.5 and 588.0, while 1st support hits today at 576.1 and below there at 571.1.