GOLD:
GOLD MARKET FUNDAMENTALS: With the Asian trade lifting gold prices in the face of numerous bearish outside market developments, it would seem like the trade has returned to the idea that physical buying will generally support prices. In fact, in addition to the Asian buying activity overnight, the trade is also fixated on the idea that Indian gold demand will continue to be strong even after the festival season. With a couple of metals publications noting a vast improvement in the quarter over quarter gold demand, the Dollar and energy prices generally providing support to gold, and the market also being boosted by last week's terrorism threat against Saudi Arabia, there seems to be a number of items bolstering the bull camp. Just to add to the bullish tilt, AngloGold suggested that their 3rd quarter gold production was unchanged, while a Russian gold producer suggested that their gold and silver production would fall in the 3rd quarter. In fact, that Russian concern suggested that their gold concentrate production was set to decline by 16%. With an Australian Bank overnight revising their gold forecast to a more supportive outlook and the flow of fundamental news distinctly supportive, the rise above $600 might facilitate even more buying ahead. In fact, early today a number of traders were suggesting that December gold had little in the way of resistance until the late September highs of $612.5. The October 24th Commitment of Traders with Options report showed the Gold Non-Commercial position to be net long 53,496 contracts, with the Non-reportable position also net long 27,620 contracts for a combined spec and fund long of 80,000 contracts and that positioning is certainly understated considering that gold finished last week almost $15 an ounce above the level where the COT report was measured. Therefore, the gold market enters the new week a slight bit overbought, but apparently capable of entrenching itself above the $600 level. In fact the $600 level now appears to have become support instead of resistance. Therefore, we suspect that the market will attempt to rise directly to the $612.5 pivot point and with a noted rise in oil this week, or a noted slide in the Dollar, it would not be surprising to see December gold manage a rise to the $620 level.

SILVER:
SILVER MARKET FUNDAMENTALS: With the gold market providing the silver market with distinctly positive leadership, the bias this morning in silver is pointing upward. However, it was noted by the Asian trade this morning, that December silver was barely able to rise above last week's highs, despite the fact that the gold market had managed a significant upside breakout. On the other hand, the silver is getting positive fundamental news, as Russian gold and silver producer has indicated that their 3rd quarter silver production appears to have come in soft and that might serve to underpin silver from the physical commodity argument. Certainly the terrorism threat against Saudi Arabia is a major portion of the buying interest in the silver over the last two sessions, but we also think that the expectation of strong and robust Indian gold demand is providing the silver market with a very supportive demand expectation. While the copper market is starting the session out this morning in a positive motion, that market might continue to be a bit of undermining for the silver market. In another slight undermine for silver this morning, the Press noted lower silver price action overnight in Tokyo silver and that might be the reason why silver prices are relatively lagging behind the gold market this morning. However, with the higher overnight action and the positive action last week, the trade is becoming more confident in the idea that the $12.00 level has become a solid support point. On the other hand, given the significant consolidation pattern in August between $12.00 and $13.00, the silver market might find it difficult to rise consistently without constant fundamental assistance. The October 24th Commitment of Traders with Options report showed the Silver Non-Commercial position to be net long 22,511 contracts, with the Non-reportable position also net long 18,613 contracts for a combined spec and fund long of 40,000 contracts. With the December silver contract ending last week 27 cents above the level where the COT report was measured, the spec and fund long position is probably understated.
Closer-in support is seen at $12.15 but the real support remains $12.00, while near term resistance is seen up at $12.32. The bias is up, but silver will need constant help from gold and the headlines, as the bull theme is still somewhat questionable.

METALS TECHNICAL OUTLOOK 10/30/2006

COMEX SILVER (DEC) 10/30/2006: 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 market's close below the 1st swing support number suggests a moderately negative setup for today. The next upside objective is 1231.0. The next area of resistance is around 1218.0 and 1231.0, while 1st support hits today at 1198.1 and below there at 1191.1.

COMEX GOLD (DEC) 10/30/2006: Daily stochastics have risen into overbought territory which will tend to support reversal action if it occurs. The close above the 9-day moving average is a positive short-term indicator for trend. The market has a slightly positive tilt with the close over the swing pivot. The next upside target is 606.5. The next area of resistance is around 604.1 and 606.5, while 1st support hits today at 597.8 and below there at 593.8.