GOLD:
GOLD MARKET FUNDAMENTALS: After some impressive action over the last two weeks, the gold market has seemingly come into the action this morning with a slightly weaker tone. It seems that the election is an inflection point for the gold trade today and it also seems like the market has already factored a loss of seats by the GOP. However, the trade and Press hasn't been real specific on what the political linkage is and therefore it is possible that the election impact will be mostly insignificant. However, the gold market might be a bit undermined by news overnight that gold hedgers slowed their de-hedging pattern to just 2 million ounces in the 3rd quarter, from the 5 million ounce pace seen in the 1st and 2nd quarters. In the past, de-hedging was mostly accepted as a development that implied lower supplies of gold going forward, which the market then translated through the supply and demand calculations into a net result of lower ending stocks and that means de-hedging sometimes has the same price impact as an increase in implied demand. In other words, lower de-hedging (less gold sold forward into the market) simply leaves the "appearance" of more demand, and therefore less de-hedging could be seen as a reduction of implied demand. In a slightly supportive but potentially old development, the London Press is playing up the idea that sharp gains in metals and mining stocks helped the FTSE forge the highest close since 2001 on Monday and that would seem to rekindle some of the bullish buzz toward metals as an investment group. Apparently the Gold Fields merger/buyout of Western Areas is running into some financing complications and that could also be seen as a minor negative to gold prices. In conclusion, the fundamental outlook for gold today appears mixed, with the outside market influences non-descript and the technical condition of the market somewhat overbought. Apparently the stellar run up in gold prices has resulted in a partially overdone technical condition in gold and that in turn has also seemingly allowed December gold to correct roughly $5 off the recent highs. We are just not sure that the election outcome is that significant to gold and therefore we suspect a bit of back and fill action is ahead. In the short term, we would expect December gold to see a temporary dip back down to $622 but for the market to generally hold above more critical support down around $615.

SILVER:
SILVER MARKET FUNDAMENTALS: After generally outperforming the gold market over the last week, the silver market is apparently into a bit of profit taking in the early action today. While we doubt that higher production news yesterday is behind the setback today, it is possible that a slightly softer macro economic view is allowing the bear camp to get a minor and perhaps temporary edge over the bull camp. With gold, silver, copper and platinum all taking a leadership turn in the metals over the last several weeks, it would seem like investment interest in the metals is pretty fluid and that would seem to favor the bull camp. However, we get the sense over the last 24 hours, that the bull camp in the silver market is currently without a fresh theme and that could allow the technicals to apply some pressure to prices. It does seem like the sharp gains in the equity market on Monday facilitated a bullish environment for silver but that positive outside force is missing in the early action today. However, the silver market might be indirectly supported by a more positive price movement in copper in the overnight action. In conclusion, a quiet fundamental news front might see the talk of overbought technicals brought to the forefront. As mentioned already the silver market is at least partially overdone as a result of the $2.00 per ounce rally off the October lows. However, as long as the macro economic outlook doesn't deteriorate and the Dollar doesn't explode for a big rally, we don't see the coming weakness to be that significant or sustainable. In fact, from a near term basis it is likely that December silver will be able to respect close-in support on the charts of $12.57. Trend channel support in December silver comes in down at $12.30 and then at $12.36 on Wednesday.

METALS TECHNICAL OUTLOOK 11/7/2006

COMEX SILVER (DEC) 11/07/2006: Momentum studies are trending higher but have entered overbought levels. The close above the 9-day moving average is a positive short-term indicator for trend. It is a mildly bullish indicator that the market closed over the pivot swing number. The near-term upside objective is at 1298.3. With a reading over 70, the 9-day RSI is approaching overbought levels. The next area of resistance is around 1289.5 and 1298.3, while 1st support hits today at 1262.5 and below there at 1244.3.

COMEX GOLD (DEC) 11/07/2006: Momentum studies are trending higher but have entered overbought levels. The market's short-term trend is positive on the close above the 9-day moving average. It is a mildly bullish indicator that the market closed over the pivot swing number. The near-term upside objective is at 632.9. The 9-day RSI over 70 indicates the market is approaching overbought levels. The next area of resistance is around 630.6 and 632.9, while 1st support hits today at 625.2 and below there at 622.2.