GOLD:
GOLD MARKET FUNDAMENTALS: After seeing a series of stories on Asian physical buying early this week and seeing positive guidance from oil prices, the gold market looks to start the last session of the week holding above the critical $600 chart level. However, this morning physical gold buying dialogue from Asia was surprisingly quiet compared to prior sessions. In fact, gold prices in Hong Kong were actually a bit lower but apparently other Asian players were light buyers of the idea that current OPEC action and perhaps more importantly the prospect for additional OPEC action ahead, would keep the threat of inflation alive. Furthermore, against the backdrop of persistently rising US equity prices, the trade might also be upgrading its physical/jewelry demand expectations. In fact, with news overnight from an Indian state-run trading house (MMTC Ltd.) that they had imported 60 tons of gold between April 1st and October 15th and that company suggesting that the 60 ton figure was 33% above the same period last year, the gold market certainly gets some confirmation that Indian gold demand is strong. While the bear camp might suggest that the bulls are reliant on two narrow fundamental themes, the bear camp just doesn't have a conclusive enough argument of recessionary/deflationary ahead to discourage buyers and for that reason, it would seem like the bull camp will start the session today with a minimal edge. While the December gold contract looks to battle to hold above the $600 level, the up trend pattern was entrenched a bit by the rally yesterday. However, it would not be positive to see the gold market fail to hold above $600 into the close today, as the market has viewed that level as an extremely critical level all week long. For today's action we would expect a range of $597 to $605, but the failure to see December crude oil hold above the $60.00 level this afternoon, could turn up the profit taking incentive and in turn pressure December gold back to the $597 level. On the other hand, the gold market looks to start with a minimal upward bias but the bull track doesn't look to be dominating.

SILVER:
SILVER MARKET FUNDAMENTALS: Like the gold market, the silver market has effectively managed to hold above psychologically important support of $12.00 on the charts into the US opening today. Also like gold, the silver market is generally benefiting from the view that oil prices are signaling the potential for upcoming pricing pressures. However, the silver market hasn't seen as much anecdotal physical demand evidence as the gold market this week and therefore the silver market might be totally dependent on the direction of gold. If fact, the silver market really doesn't seem to be getting much direction from copper price action this week, as copper price action this week has shown a tight sideways coil, after a big rally on Monday failed to hold together. Therefore, the silver market might be considered a secondary market to either gold or the energy complex and might only see a minimal impact off the direction of equity prices. However, we do think that the upward bias in equity prices is generally supporting silver, but macro economic sentiment isn't so positive, that silver can expect to ride that psychology to significantly higher price levels. Some traders are suggesting that a quasi triple high zone around the $11.95 to $11.98 level will be an extreme critical level for the market to hold above today, as that level seemed to hold the market back earlier this week. We would expect an initial upside attempt to levels above the prior session's high of $12.169 but we are not sure that the silver market will have the headlines to sustain those gains into the close. Certainly the trend is pointing up but we suspect that the route to higher prices will be fraught with persistent back and fill action.

METALS TECHNICAL OUTLOOK 10/20/2006

COMEX SILVER (DEC) 10/20/2006: The cross over and close above the 60-day moving average is an indication the longer-term trend has turned positive. Daily stochastics have risen into overbought territory which will tend to support reversal action if it occurs. The market's short-term trend is positive on the close above the 9-day moving average. A positive signal was given by the outside day up. There could be more upside follow through since the market closed above the 2nd swing resistance. The near-term upside objective is at 1250.3. The next area of resistance is around 1238.5 and 1250.3, while 1st support hits today at 1193.5 and below there at 1160.3.

COMEX GOLD (DEC) 10/20/2006: The cross over and close above the 40-day moving average is an indication the longer-term trend has turned positive. 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. The outside day up is somewhat positive. The market's close above the 2nd swing resistance number is a bullish indication. The near-term upside objective is at 614.3. The next area of resistance is around 609.8 and 614.3, while 1st support hits today at 595.1 and below there at 584.8.