GOLD:
GOLD MARKET FUNDAMENTALS: Yesterday the gold market managed to garner some respect by adding to its recent gains in the wake of the FOMC outcome. However, some players have suggested that the action on Thursday was mostly short covering and that the real test of the bull camp will be the action in the face of a critical US GDP reading this morning. Some traders are hoping that declines in the US Dollar will relegate the ebb and flow of scheduled numbers to a lower status, especially since GDP readings are expected to continue their slide from last year's lofty status. In positive overnight news, a Gold Fields official suggested that world gold production was expected to remain in the decline by about 1% to 1.5% annually and is certainly a supportive element, but so far today that dialogue seems to be lost in the shuffle. While we doubt that the energy complex will actually relinquish the dominate role in daily metals pricing, it is possible that an additional downside extension in the Dollar ahead could begin to offset minor energy price declines. Initially oil prices are softer and the Dollar is lower early on and that seems to favor the bear camp at the start of the session today. If the US GDP adds to that early weight, we suspect that the week ending profit taking mentality will gain even more prominence. Given the setback below $600 there will certainly be a bit of profit taking and the most logical correction point on the charts is $592.6 and then again at $589.1. In order to turn the tide this morning, the gold market will need some outside help from oil or the GDP report. In our book, seeing the GDP come in at 2.0% is defeating and that could set the stage for a bigger break than might have been expected after this week's strength. On the other hand, if the bear camp can't break down the market today, their confidence will really be shattered and more definitive bullish views will surface. In fact, seeing December gold close above $600 today might be cause to project a quick return to the late September highs of $612.

SILVER:
SILVER MARKET FUNDAMENTALS: The silver market is apparently taking the lead of the gold market with a bit of early weakness today. With copper prices also firm overnight it is possible that the silver market will be somewhat cushioned from the US GDP report, which many traders fear is bordering on being overly slow. However, the silver market will continue to take its lead from gold, which is taking its lead from the energy complex. With visible stock levels in silver simply hovering above critical psychological levels and recent demand stories on silver few and far between, there would seem to be little to argue against a little week ending profit taking in a market that has managed a 92 cent rally from low to high this week! So far, neither silver nor gold have paid that much attention to the prospect of rising food prices off the rather surprising run up in corn and wheat prices but that could soon become a supportive element for the metals markets. It goes without saying that the $12.00 level is critical support, but we don't get the sense that the market is overly vulnerable to some massive washout in prices. We do get the sense that some weakness off profit taking will serve to sink prices and perhaps the December contract will actually slide to $11.96, but again seeing a close above $12.00 should leave the bull camp with a slight edge. However, to avoid concentrated selling this morning, the US GDP reading can't be below the 2.0% level.

METALS TECHNICAL OUTLOOK 10/27/2006

COMEX SILVER (DEC) 10/27/2006: The cross over and close above the 60-day moving average is an indication the longer-term trend has turned positive. The crossover up in the daily stochastics is a bullish signal. Studies are showing positive momentum but are now in overbought territory, so some caution is warranted. The market's close above the 9-day moving average suggests the short-term trend remains positive. The gap up on the day session chart gave a bullish indicator and more follow through could be seen this session. The market has a bullish tilt coming into today's trade with the close above the 2nd swing resistance. The next upside target is 1244.8. The next area of resistance is around 1236.5 and 1244.8, while 1st support hits today at 1211.5 and below there at 1194.8.

COMEX GOLD (DEC) 10/27/2006: The major trend could be turning up with the close back above the 40-day moving average. Positive momentum studies in the neutral zone will tend to reinforce higher price action. A positive signal for trend short-term was given on a close over the 9-bar moving average. With the close over the 1st swing resistance number, the market is in a moderately positive position. The near-term upside target is at 607.0. The next area of resistance is around 604.0 and 607.0, while 1st support hits today at 595.6 and below there at 590.1.