GOLD:
GOLD MARKET FUNDAMENTALS: While the gold market might initially be supported by Asian stories hinting at gold being used as an inflationary hedge, the recent decline in oil prices seems to call the early gold gains into question today. Furthermore, the knowledge of a slight quarterly contraction in the Chinese GDP from a prior 10.9% reading to 10.7%, has some economists suggesting that Chinese slowing efforts are starting to have an impact and that could rekindle the idea of declining physical buying from the Asian arena. In another supportive overnight development, the Press in Malaysia is suggesting that despite recent gains in gold prices, jewelry demand in that country continues to rise. In fact, some Malaysian jewelers are seeing a 20% rise in sales this year, partly because of the festival atmosphere. In a similar note overnight, the Press is also documenting an increase in gold and jewelry sales in the UAE, with those increases attributed to both the Diwali and Eid Al Fitr festivals. In short, demand news outside of the US might be serving to support prices, while the macro economic/oil focus in North America looks to continue to be a drag on gold prices. In other words, the Asian market impact is consistently fighting to support prices against the general liquidative tone persistently being generated in the US trading session. A pattern of lower highs and lower lows this week would seem to leave the bias in prices pointing downward. In fact, the news of slowing Chinese GDP is a pretty negative start and with the added pressure of the recent new low in oil prices, the bull camp has to get some surprise help or gold prices might be forced to return to the $580 level. We aren't even sure if a sharp upward thrust in stock prices and or decent US economic readings will provide much support to gold prices in the coming sessions. In the end, we don't think that the gold market has shaken off the general down trend mentality that has been in place since the beginning of July.

SILVER:
SILVER MARKET FUNDAMENTALS: After returning to the critical $12.00 level this week, the silver market has apparently lost some upside momentum. In fact, even with a persistent flow of positive global demand talk in gold, the metals seem to have remained under a cloud of suspicion. However, the silver market might be supported by news overnight that another silver contract will start trading in China at the end of this month, as that might bring forth more implied demand for a market that is already thought to be in a tightening posture. The silver market might have been disappointed by the lack of clarity in the US numbers yesterday and the silver market might also be undermined by the news this morning that Chinese GDP in the latest quarter actually slowed down a bit. Therefore, the silver market will be watching the direction of oil and the pace of the US numbers closely today, as the bear camp is getting the news flow to fan the flames of slower growth and sagging inflation. With the clear reversal away from the $12.00 level this week and a similar reversal taking place in the gold market, the bias in the silver market appears to be pointing downward. In fact, in the face of more oil derived deflationary psychology, we would not be surprised to see the December silver contract slide down to consolidation support below $11.50. In fact, under moderately slower macro economic readings and another slide in oil prices, a slide to $11.00 in December silver over the coming week would not be that surprising.

METALS TECHNICAL OUTLOOK 10/19/2006

COMEX SILVER (DEC) 10/19/2006: Rising stochastics at overbought levels warrant some caution for bulls. The market's short-term trend is positive on the close above the 9-day moving average. It is a mildly bullish indicator that the market closed over the pivot swing number. The next upside target is 1205.0. The next area of resistance is around 1192.0 and 1205.0, while 1st support hits today at 1172.1 and below there at 1165.1.

COMEX GOLD (DEC) 10/19/2006: Stochastics are at mid-range but trending higher, which should reinforce a move higher if resistance levels are taken out. The market's close above the 9-day moving average suggests the short-term trend remains positive. The market's close below the pivot swing number is a mildly negative setup. The next upside target is 599.8. The next area of resistance is around 595.5 and 599.8, while 1st support hits today at 589.6 and below there at 587.8.