GOLD:
GOLD MARKET FUNDAMENTALS: Apparently the gold market responded aggressively to renewed talk yesterday of Chinese Central Bank diversification away from US assets. While some gold traders seemed to bid up prices on the theory that diversification would pressure the Dollar and in turn lift gold, other traders took the news as a sign that China might actually be set to add gold to their reserves. While the US Fed member prediction early this week, of more Central bank diversification was key in waking up the market to a critical big picture development, the statements from the Chinese governor on Thursday, regarding diversification, really gives the trade some confirmation. Furthermore, various noted analysts have already suggested that seeing China add more gold to its reserves, has the capacity to provide support to gold prices for years to come. In fact, from the bull camp's perspective, a realistic chance of increased Chinese central bank gold buying is a very major development, as the Chinese gold reserves as a percent of total reserves currently represent only 1%. Some overnight predictions suggested that China could raise their gold reserves to as much as 5% or 6% and that has the potential to change the world gold supply and demand equation dramatically. In the background, the trade continues to toss around the idea that the Russians are in a similar position to China, with their progress as a world trading partner also expected to raise their gold reserve needs. In another bullish development overnight, it seems that Indian regulators have cleared the way for trade in gold ETF's and that is potentially another source of investment demand for gold. Into the opening today, a lower Dollar is only providing marginal support for gold prices and that could be the result of the overbought condition from yesterday, and it could also be the result of generally weaker oil prices and some strength in equity prices overnight. We suspect that the market is a bit overbought from the action Thursday and while we see the Chinese thing providing long term support to prices, the upward track in prices probably won't be a straight line. In the near term, we would expect prices to consolidate the gains as the idea of a lower Dollar and diversification isn't going to go away quickly. We suspect that the December contract will find very solid support off the prior high consolidation of $631.3. On the other hand, seeing the December contract manage a climb above the $640 level, could rekindle another wave of speculative buying.

SILVER:
SILVER MARKET FUNDAMENTALS: While the silver market doesn't seem to be directly in line for Chinese reserve buying, the gold market has and probably will continue to be the main leading indicator for silver. While the recent pattern of rising exchange stocks abated overnight and the copper market is showing weakness again, the focus of the silver market is definitively pulled toward the "financial" flight to quality theme. In other words, the trade probably won't be too concerned with ongoing proof of slack physical demand for silver, as the investment crowd looks to dominate the headlines. Therefore the recent news of rising profits at Apex Mines and talk of potentially expanding production at APEX, could be lost in the news shuffle. Some traders might suggest that silver is a bit overbought from a short term perspective, as the December contract to the overnight high was up roughly 77 cents from this week's low. However, some traders are suggesting that the rise above $13.00, is a development that will prompt even more investment interest to silver and that prices could now be attracted to the early September highs of $13.39. Near term critical support in the market moves up to $13.08, but the psychological level of $13.00 is probably more significant support. As suggested already, we see little resistance in the market until the $13.39 level in the December contract but traders should not chase this market with buy orders. In fact, despite a long term upward extension off spillover support from the gold market, we suspect that silver will still see corrections of 25 to 30 cents from various reaction highs. If China really does add some gold reserves, the Dollar continues to decline and food and energy prices show ongoing inflationary signs, we wouldn't rule out silver prices above $14.00 prior to the end of the year.

METALS TECHNICAL OUTLOOK 11/10/2006

COMEX SILVER (DEC) 11/10/2006: A bullish signal was given with an upside crossover of the daily stochastics. Daily stochastics have risen into overbought territory which will tend to support reversal action if it occurs. 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 objective is at 1336.4. The market is becoming somewhat overbought now that the RSI is over 70. The next area of resistance is around 1325.3 and 1336.4, while 1st support hits today at 1284.8 and below there at 1255.4.

COMEX GOLD (DEC) 11/10/2006: A bullish signal was given with an upside crossover of the daily stochastics. Momentum studies are trending higher but have entered overbought levels. The market's close above the 9-day moving average suggests the short-term trend remains positive. There could be more upside follow through since the market closed above the 2nd swing resistance. The near-term upside objective is at 647.4. With a reading over 70, the 9-day RSI is approaching overbought levels. The next area of resistance is around 643.8 and 647.4, while 1st support hits today at 629.8 and below there at 619.4.