GOLD:
GOLD MARKET FUNDAMENTALS: As suggested already the gold trade seems to be bracing for a bit of pressure off what is expected to be a hawkish Fed statement. The trade really isn't expecting the Fed to raise rates, but in general, the sentiment is that rates are "high" and that the Fed will probably suggest that they might eventually have to be pushed even higher. From a fundamental perspective, both Gold Fields and Harmony gold both reported gains in earnings overnight, while Meridian Gold reported negative earnings readings. In general it seems that South African producers managed to outperform North American gold producers but the impact of currency, instead of sharply rising production was supposedly the lion's share of the South African edge. Therefore, it would not seem like the April through June $625 to $753 price bulge in gold has actually resulted in a noted increase in production. With physical demand stories mostly lacking overnight, one might suggest that gold could remain under the liquidation cloud in place since last Friday's high, but it should be noted that German Ifo figures overnight were strong and that the ECB seemed to put a limit on the amount of rate hikes that might be seen in the Euro zone. With oil prices maintaining a bit of their recent bounce off their lows and the US equity market also serving to keep attitudes toward the US economy upbeat, it is possible that the gold market could skirt the Fed outcome today without a concentrated selling burst. Near term critical support on the charts is seen at $582.5 but a quick return to $575 can't be ruled in the face of the potential developments today. However, the weight of the Fed might be seriously mitigated this morning, if the 9:30 cst weekly oil inventory readings spark some fresh concern of tightening distillate stocks. In fact, early cold weather has pushed up heating degree days and that could help the energy complex hold up and that in turn could take some of the pressure off gold. However, one should not be surprised to see December gold trade on either side of a $573 to $600 range. This market is trying to bottom but it needs a quasi all clear from the Fed and firmer oil prices to effectively forge a bottom.

SILVER:
SILVER MARKET FUNDAMENTALS: About the only thing the bull camp could muster from the overnight action in silver was that Japanese traders were willing to short cover positions. With copper remaining weak and platinum at times this week also under severe pressure, it certainly feels like the non financial metals tilt is mostly spilling over some minor weakness onto the silver market. In fact, with copper stocks showing a recent pattern of large gains and a major platinum producer posting record output overnight, the copper and platinum markets might be expected to keep up their pressure on silver prices in the near term. Therefore, the silver market will probably continue to focus directly on gold prices, which in turn are mostly focused on the direction of oil prices. A number of traders are suggesting that the gains off the August and September lows were unjustified fundamentally and that the silver market remains vulnerable to a setback toward the middle of the last two months trading range, which is $11.35 basis the December contract. The 100 day moving average comes in at $11.57 today and that could also be seen as a critical point in the coming sessions. Close-in support in the December silver contract comes in at $11.74, with another critical level seen at $11.65. We get the sense that silver is in a constant fight against a weak liquidation wave and getting beyond the Fed today, without a significant washout might be more than a psychological victory for the bull camp in silver. However, into the Fed meeting we would leave the edge in this market with the bear camp. In other words, the bulls have to prove that they can change the current psychological tilt.

METALS TECHNICAL OUTLOOK 10/25/2006

COMEX SILVER (DEC) 10/25/2006: The market now above the 40-day moving average suggests the longer-term trend has turned up. Daily stochastics turning lower from overbought levels is bearish and will tend to reinforce a downside break especially if near term support is penetrated. A positive signal for trend short-term was given on a close over the 9-bar moving average. A positive signal was given by the outside day up. Market positioning is positive with the close over the 1st swing resistance. The next downside target is 1119.2. The next area of resistance is around 1212.3 and 1228.1, while 1st support hits today at 1157.8 and below there at 1119.2.

COMEX GOLD (DEC) 10/25/2006: Momentum studies are rising from mid-range, which could accelerate a move higher if resistance levels are penetrated. The market now above the 18-day moving average suggests the intermediate-term trend has turned up. The upside closing price reversal on the daily chart is somewhat bullish. With the close over the 1st swing resistance number, the market is in a moderately positive position. The near-term upside objective is at 598.0. The next area of resistance is around 594.0 and 598.0, while 1st support hits today at 581.1 and below there at 572.1.