GOLD:
GOLD MARKET FUNDAMENTALS: Last week's action in gold in many respects defied the typical fundamental focus of the trade. In fact, the gold market seemed to diverge from the day to day direction of both energies and the Dollar. However, it might also be said that the Dollar and energy market action last week was hardly definitive toward the end of last week and the real test of the bull camp in gold directly ahead, could be whether or not the market can sustain positive action in the face of some minor gains in the Dollar and perhaps in the face of more sideways to weak action in the energy complex. On the other hand, the gold market saw Asian gold prices rise for the 10th straight session overnight and supposedly that market forged the gains off the ideas of strong Asian jewelry buying ahead of the coming holidays. In fact, a Press story overnight suggest that jewelry buying for Christmas typically starts at the end of November, but this year it seems as if buying has kicked off somewhat early. Surprisingly seeing an upbeat Canadian Bank gold forecast, that suggested gold prices could remain positively biased for the rest of the decade, hasn't given the gold market much of a psychological lift into the opening today. On the other hand, seeing oil prices trade lower this morning, despite unconfirmed reports of an attack on an oil facility overnight and also seeing a slightly higher US Dollar early has probably prevented gold from giving off positive early indications. The October 31st Commitment of Traders with Options report showed the Gold Non-Commercial position to be net long 61,542 contracts, with the Non-reportable position also net long 30,953 contracts, for a combined spec and fund position of 92,000 contracts. Unfortunately for the bull camp, the COT readings are probably dramatically understated and the market is perhaps more overbought than the trade is accepting of into the opening this morning. In fact, despite another new high for the move overnight, December gold has effectively fallen back below the prior two sessions closing values and that might hint at a re-test of the first chart support level of $620. Others might suggest that the bullish resolve of the market will serve to hold December gold above closer-in support of $626, but the early weakness in gold and the strength of the Dollar into the election is a little worrisome. We continue to suggest that traders holding long futures positions should utilize short call and long put positions to meter their risk.

SILVER:
SILVER MARKET FUNDAMENTALS: Unlike the gold market, December silver was unable to make a higher high in the early action today and that might hint at some loss of momentum, or it might suggest the need for more distinct leadership from the gold market. In fact, with gold the primary leading market and the platinum market also attracting intense speculative over the last week, it is not surprising that silver has encountered some profit taking action. Some in the trade might suggest that close-in support in the December silver contract this morning is $12.58, while others might point to even lower support at $12.47. In the end, the bull camp would appear to be reliant on the flight to quality/inflation argument, as recent weakness in the copper market and the softening of the US macro economic outlook, would seem to undermine bullish psychology toward silver off the physical or industrial demand perspectives. However, the bull camp seems to banking on a revitalization of investment interest and that mentality is probably responsible for the majority of the gains made in silver prices since the September low. Therefore, the silver bulls probably need more uncertainty from the rising labor costs arena. The October 31st Commitment of Traders with Options report showed the Silver Non-Commercial position to be net long 24,538 contracts, with the Non-reportable position also net long 20,459 contracts for a combined spec and fund positioning of 45,000 contracts. Certainly the COT long positioning appears to be understated, especially when one considers that silver prices this morning are trading roughly 30 cents above the level where the COT report was measured. Therefore, the technicals seem to leave the market a little vulnerable and the fundamentals are mixed to slightly weak. Therefore, we can't rule out a corrective setback to $12.47 in the action today.

METALS TECHNICAL OUTLOOK 11/6/2006

COMEX SILVER (DEC) 11/06/2006: Rising stochastics at overbought levels warrant some caution for bulls. A positive signal for trend short-term was given on a close over the 9-bar moving average. With the close higher than the pivot swing number, the market is in a slightly bullish posture. The near-term upside target is at 1289.8. The market is approaching overbought levels with an RSI over 70. The next area of resistance is around 1279.5 and 1289.8, while 1st support hits today at 1247.5 and below there at 1225.8.

COMEX GOLD (DEC) 11/06/2006: 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 close over the pivot swing is a somewhat positive setup. The near-term upside target is at 639.1. The market is approaching overbought levels with an RSI over 70. The next area of resistance is around 635.1 and 639.1, while 1st support hits today at 623.3 and below there at 615.5.