GOLD:
GOLD MARKET FUNDAMENTALS: While news of renewed Asian physical buying is apparently serving to drive gold prices higher in the early going this morning and the December contract has in the process managed another new high for the move, the bull trade will have to tamp down concerns that rising prices are going to reduce Indian gold demand. Apparently a story out of Mumbai overnight fretted over the idea that gold retail sales in India were quieting down because of the rather sharp appreciation in prices throughout the month of October. In another limiting story overnight some trade participants are noting physical selling in the face of the overnight gains and that is probably limiting the upside action. However, with some London players this morning, tossing around the idea of a US rate "cut", it is possible that the bias in the Dollar will remain down and therefore gold might expect ongoing support from the currency markets. With a major brokerage firm cutting its 2007 gold price forecast yesterday afternoon, one might think that the gold market would see buyers deterred but when one considers that the private brokerage firm price forecast for gold was lowered to an average price of $700 per ounce, the trade might actually be attracted to gold, with nearby prices only recently managing to regain the $600 price level. In the end, the gold market appears to be shifting its focus when necessary and in the process forging consistent upside action. In other words, the bulls are apparently finding what they need in the headlines to continue to control prices and have displayed that bullish bias by simply discounting news overnight of a sharp 155% increase in August Mexican gold production. As suggested already the December gold market has managed to forge another new high for the move overnight with a rise above the $613.5 high and that suggests the bull camp is in control of prices at the start of the session today. Certainly the market has shifted its focus and in the near term the market looks to rise on the idea that the US economy is slowing and is perhaps slowing too much! However, we do think that a progressively lower Dollar is an important component of the bull case and therefore the gold market might have to see the Dollar reverse its early upward course in the wake of the numbers, or the gold market could see a temporary setback. With the December gold contract reaching the highest level since September 11th overnight, it would seem like the market is set to grind back up to the next critical resistance zone of $620. The market is bullishly poised but conditions are exactly conclusively supportive.

SILVER:
SILVER MARKET FUNDAMENTALS: While the gold market managed a new high for the move overnight, the December silver contract has managed perhaps an even more impressive pulse up overnight. In fact, with the high overnight the Silver has reached the highest level since September 8th and it has actually forged a breakout of the general uptrend channel fleshed out over the last two months. While the story in the Press overnight, about a new silver tipped paint brush, might be insignificant in terms of the actual amount of potential demand from that product, the fact of the matter is that the silver market was already in a positive posture and therefore any bullish news adds to the bias. Apparently the silver market continues to benefit from the expectation of a weakening Dollar and that has apparently allowed the silver market to discount the fact that the copper market (which can be a key focal point for silver) has recently encountered a build up of supply and fears of declining physical demand. In fact, with the silver market indirectly benefiting from a pattern of weakness in the US economy, it is clear that the bull camp in silver has seemingly benefited from flight to quality concerns instead of the typical physical supply and demand factors. However, the market isn't completely without supportive supply and demand news this morning, as Mexican August silver production was reported to have declined by 4.8%. In fact, Mexican silver production actually declined to 170,365 kg and a decline in Mexican silver production is usually a material item to the trade. In short, lower supply might effectively offset the fear of slackening physical demand and in turn allow the flight to quality issues to continue to control silver prices. It would seem like the silver market is poised to make the $12.50 level a new support level instead of a resistance zone. Unfortunately, the silver market has made the recent gains on declining open interest and that could be seen as a near term limiting item. However, even if the rally seems to be constructed on narrow arguments, one can't fight the up trend pattern in the near term. We suspect that the market will continue to grind out gains and will probably manage a rise to $12.59 in the coming two sessions.

METALS TECHNICAL OUTLOOK 11/1/2006

COMEX SILVER (DEC) 11/01/2006: Momentum studies are trending higher but have entered overbought levels. A positive signal for trend short-term was given on a close over the 9-bar moving average. The daily closing price reversal up is a positive indicator that could support higher prices. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The near-term upside target is at 1253.8. The next area of resistance is around 1243.5 and 1253.8, while 1st support hits today at 1210.5 and below there at 1187.8.

COMEX GOLD (DEC) 11/01/2006: Rising stochastics at overbought levels warrant some caution for bulls. The market's short-term trend is positive on the close above the 9-day moving average. The market's close below the pivot swing number is a mildly negative setup. The next upside target is 614.6. The next area of resistance is around 611.2 and 614.6, while 1st support hits today at 602.4 and below there at 597.1.