GOLD:
GOLD MARKET FUNDAMENTALS: Apparently investors were prompted to exit gold yesterday in the face of sagging oil prices and declining inflationary conditions. In fact, the Press continues to suggest that some investors are leaving gold because it has become a poor inflation hedge, instead of suggesting that lower energy prices has reduced the need for inflationary protection. It is also possible that the equity market is indeed siphoning off some money from gold, as significant appreciation in stocks is probably attracting some capital flow. It is also possible that the gold market is indeed beginning to play the waning of the Indian festival season and it is also interesting to note that overnight Press reports specifically noted a lack of physical interest in the Asian action and that typically leaves the US action to the whim of the oil market. However, the gold market did see a minimally supportive story overnight from Vietnam, where officials were supposedly set to allow the Saigon Jewelry Company to import an additional 10 tons of gold to meet current market demand. While there are apparently pockets of strong demand still present in Asia, the market still looks to have trouble throwing off its current bearish bias. In fact, supporters of gold are keeping a low profile and that could give the bear camp confidence again today and that could also leave December gold without much in the way of support on the charts until the critical $575 pivot point. Given the big range down on Monday and the early attempt to extend the downside pulse this morning, we suspect that December gold will make quick work of a slide to $575. While we doubt that prices are set to retest the early October lows of $563, the bias in prices looks to remain down, until there is a more significant headline shift. In fact, until the oil market reverses or physical buyers show some sign of bargain hunting buying, the path of least resistance in prices looks to remain down.

SILVER:
SILVER MARKET FUNDAMENTALS: So far the silver market has been able to avoid as much liquidation pressure as the gold market. We suspect that the silver market was less overextended than the gold market from a speculative perspective and that the silver market is seeing some minimal support from the idea that physical or industrial demand might still be capable of supporting silver prices sooner than gold prices. However, with the overnight Press specifically ruling out the presence of concentrated physical demand, the silver market does remain vulnerable to more bearish action directly ahead. Traders might be watching copper prices closely this morning, as a failure to hold above the $3.40 level today in December copper, might cast additional doubt on the prospect of improving physical interest in silver and that might in turn prompt more longs to move to the sidelines. Surprisingly the sharp slide in energy prices has put the silver market in position where significant gains in the stock market haven't been much of a benefit to silver prices. With the FOMC meeting looming ahead for the coming two sessions and some players expecting metals prices to remain down through the coming US election, it would certainly seem like the bear camp has the brunt of the current market forces in their favor. With little in the way of support on the charts until the $11.53 level and the rest of the metals markets showing a negative bias, we have to think that more near term declines are ahead. However, we are not sure that December silver needs to fall to the next lower critical support point of $11.13, unless the generally positive macro economic outlook is in some way called into question. In short, we see gradually declining prices ahead until physical buying interest steps in to forge a distinct bottom.

METALS TECHNICAL OUTLOOK 10/24/2006

COMEX SILVER (DEC) 10/24/2006: The major trend has turned down with the cross over back below the 60-day moving average. A bearish signal was triggered on a crossover down in the daily stochastics. Momentum studies are trending lower from high levels which should accelerate a move lower on a break below the 1st swing support. The close below the 9-day moving average is a negative short-term indicator for trend. The gap lower price action on the day session chart is a bearish indicator for trend. The defensive setup, with the close under the 2nd swing support, could cause some early weakness. The next downside objective is now at 1151.8. The next area of resistance is around 1176.5 and 1189.8, while 1st support hits today at 1157.5 and below there at 1151.8.

COMEX GOLD (DEC) 10/24/2006: Momentum studies are rising from mid-range, which could accelerate a move higher if resistance levels are penetrated. The intermediate trend has turned down with the cross over back below the 18-day moving average. The gap lower price action on the day session chart is a bearish indicator for trend. The close below the 2nd swing support number puts the market on the defensive. The next upside target is 591.4. The next area of resistance is around 586.4 and 591.4, while 1st support hits today at 579.4 and below there at 577.5.