GOLD:
GOLD MARKET FUNDAMENTALS: As suggested already, the outside market influence this morning and the expectations for the US numbers this morning could have kept the pressure on gold prices this morning but apparently the gold market has seen a number of positive offsets to yesterday's slowing growth/falling inflation mentality. In fact, in the Asian trade overnight the market talked up the prospect of increased physical buying and in the process saw Press reports of increased physical buying. In other bullish news overnight, Indian Jewelers were apparently predicting a sharp 25% to 30% increase in gold sales during this years Indian Diwali season. Apparently the Indian gold market is in a position to see sales stimulated by the fear that gold prices might rise and that is typically a very supportive posture. With the Asian trade overnight specifically pointing to increased physical buying (off the thought of energy price inspired inflation), the Indian gold market remaining a positive seasonal position and the overall view toward commodities mostly positive again, the $4 to $5 early gain in prices this morning seems to be fundamentally justified. However, we suspect that the gold market is a bit fearful of the scheduled US numbers this morning, as they are expected to emulate the prior session's flow. While some players are concerned that December gold has been unable to hold above the $600 level on several attempts, the market has also generally managed to reject the prior session's weakness and in effect return back up toward the critical $600 pivot point in the early action today. In fact, given the action over the last three sessions it would seem like December gold has decent support at $593.5. While the talk of Asian physical demand and ongoing support from favorable Indian purchasing patterns is supporting prices, it might take a distinct rise in energy prices or a surprise set of economic readings today to avoid another, very temporary slide back to $593 in the wake of the CPI reading this morning. Overall the trend is up but this market has the potential to waffle again today in the wake of another dose of muted US inflation and growth readings. While we doubt that the market will see the need to slide to lower support of $589, that level should be considered a buying zone.

SILVER:
SILVER MARKET FUNDAMENTALS: Just like the gold market, December silver has seemingly been restricted by even number or psychological resistance of $12.00.
However, the silver market is probably aware of the positive physical demand talk emerging in the gold trade this morning and certainly the market is aware of the rise in copper prices. However, one has to think that the scheduled report flow today will be a bit restrictive for silver, as the numbers this morning have a very similar cast to the prior session's news flow. In a bigger picture sense, the trade does seem to be embracing the uptrend pattern in place for most of October and the markets ability to climb above the late September highs in this week's action has many traders turning more upbeat toward prices. In fact, other traders are impressed with the action in silver this week because the equity market and copper price action this week hasn't exactly been supportive and that would seem to suggest that internal fundamentals in silver are managing to support prices to higher levels. In other words, the silver market is maintaining a slightly positive tilt despite the fact that outside market action has periodically produced countervailing action! While an upward bias seems to remain in place, that $12.00 level does seem to offer up formidable resistance. With the scheduled report slate today potentially undermining for silver, we can't rule out a temporary setback to $11.76 this morning. However, given the recent evidence of increased physical demand, on weakness in gold prices, and given the prospect of another surge in equity prices in the coming sessions, we have to leave control of silver prices with the bull camp. However, our generally bullish attitude would begin to wane in the event that December silver prices fail to hold above $11.63.

METALS TECHNICAL OUTLOOK 10/18/2006

COMEX SILVER (DEC) 10/18/2006: The major trend has turned down with the cross over back below the 60-day moving average. The moving average crossover up (9 above 18) indicates a possible developing short-term uptrend. Studies are showing positive momentum but are now in overbought territory, so some caution is warranted. The market's short-term trend is positive on the close above the 9-day moving average. The downside closing price reversal on the daily chart is somewhat negative. The market setup is somewhat negative with the close under the 1st swing support. The near-term upside target is at 1214.3. The next area of resistance is around 1195.5 and 1214.3, while 1st support hits today at 1160.5 and below there at 1144.3.

COMEX GOLD (DEC) 10/18/2006: Momentum studies are trending higher from mid-range, which should support a move higher if resistance levels are penetrated. A positive signal for trend short-term was given on a close over the 9-bar moving average. A negative signal was given by the outside day down. The close below the 2nd swing support number puts the market on the defensive. The next upside target is 604.7. The next area of resistance is around 598.9 and 604.7, while 1st support hits today at 588.1 and below there at 583.2.