GOLD:
GOLD MARKET FUNDAMENTALS: With the Asian metals markets overnight suggesting that North Korea might be preparing to launch a second nuclear test and oil prices rising for the 4th day in a row, it would seem like the gold market will start the session today with a positive bias. However, the trade is expecting to see a sharp contraction in the US PPI reading this morning and with the German ZEW Index reading reaching the lowest level since 1993 prior to the US trade, the macro economic outlook isn't nearly as supportive of gold, as it was yesterday morning and at the end of last week. Certainly the US Industrial Production and Capacity Utilization readings this morning could provide some countervailing economic evidence to the European slowing this morning, but it would appear as if the US PPI will be the main focal point of most markets. In other news overnight, Kazakhstan reportedly released gold production figures overnight that showed a 6.7% decline in the January through September time frame and that is minimally supportive for gold, especially in an environment where the trade might fret over slower demand because of the sharp decline in the PPI readings. In other less important but positive news, the Press was reporting on another gold merger overnight between Lihir Gold and Ballarat Goldfields and merger news can sometimes support flat prices off the idea that positive investment activity tends to facilitate outright investment buying. In the end, a probe back above the critical psychological level of $600 in the December contract in the early going today, would seem to suggest that the bull camp has generally managed to leave the recent bullish bias in place for another session. Now that the gold market has reached the psychological resistance zone of $600, the gold market might be temporarily challenged by the PPI readings this morning. However, it is possible that gold will take even more guidance from the meanderings of the oil market than the scheduled US data. In fact, it could be difficult to spin the PPI readings today into anything other than a slight negative and for that reason we suspect that gold prices will see an early dip back to $594 before righting the ship and regaining the $600 level into the close. However, traders should watch for a noted deterioration in the US macro economic outlook, as the German numbers overnight were moderately disappointing and the US PPI is probably going to contribute to that slowing view. Fortunately the trend in the gold market is still pointing up and that should cushion the bull camp against a big washout attempt today.

SILVER:
SILVER MARKET FUNDAMENTALS: While the gold market managed a new high for the move in the early going today, the silver market has forged a quasi double top around the $11.95 level in the December contract. While the silver market has tracked closely with gold over the last week and has also seen some positive correlation with the oil market, other traders are looking to direction from the copper and equity markets. Overnight Kazakhstan reported a 1.6% decline in January through September silver production and while the overall volume of silver output from that area isn't that significant, that news is probably supportive of silver prices. With the copper market reaching the highest level since September 8th yesterday and a host of other base metals markets like nickel, tin and zinc posting very strong action, we suspect that silver is getting financial market support from gold and that silver is also getting physical or industrial support from the base metals. In short, the basic fundamental condition seems to be supportive for silver and the prospect of another North Korean nuclear test might serve to distract the silver market from what might be considered slightly bearish US scheduled economic readings this morning. While the near term bias in silver prices looks to remain positive, it is a little discouraging to see the October rally unfold without a commensurate rise in volume and open interest. It should also be noted that December silver is seemingly balking at the $12.00 even number resistance zone and that would seem to hint at a temporary sideways price track. In fact, with the report slate from the US expected to cast some doubt on the forward progress in the US economy this morning, that could temporarily cap silver prices. Near term corrective support today is seen at $11.86 and resistance is seen at even numbers of $12.00.

METALS TECHNICAL OUTLOOK 10/17/2006

COMEX SILVER (DEC) 10/17/2006: The major trend could be turning up with the close back above the 60-day moving average. Rising stochastics at overbought levels warrant some caution for bulls. The close above the 9-day moving average is a positive short-term indicator for trend. The gap up on the day session chart gave a bullish indicator and more follow through could be seen this session. There could be more upside follow through since the market closed above the 2nd swing resistance. The next upside target is 1206.5. The next area of resistance is around 1200.0 and 1206.5, while 1st support hits today at 1182.1 and below there at 1170.5.

COMEX GOLD (DEC) 10/17/2006: Momentum studies are trending higher from mid-range, which should support a move higher if resistance levels are penetrated. The market's short-term trend is positive on the close above the 9-day moving average. Follow through buying looks likely if the market can hold yesterday's gap on the day session chart. The market has a bullish tilt coming into today's trade with the close above the 2nd swing resistance. The next upside target is 601.6. The next area of resistance is around 600.4 and 601.6, while 1st support hits today at 596.6 and below there at 593.9.