GOLD:
GOLD MARKET FUNDAMENTALS: Skepticism on if and when China will add gold to reserves remains but there would seem to be significantly less skepticism on whether or not China will continue to gradually move away from Dollar denominated holdings. Therefore it seems the trade generally expects to see an ongoing slide in the Dollar and that could serve to underpin gold prices for a sustained period of time. In other news overnight, the trade is beginning to publish the relative gold to foreign currency reserves held by major global economic players and those figures highlight just how far the Chinese might have to go, just to get into the same ballpark as the world's leading financial players. For instance, the US holds 74% of its foreign currency reserves in gold, while Germany, France, and Italy all hold in excess of 60% of their foreign reserves in gold. With Spain and Austria both holding just under 50%, the mere 1.3% holdings of gold by China, seems to be shocking, but it should also be noted that Japan only holds 1.8% of its foreign reserves in gold. In the end, it is possible that the trade simply accepts an ongoing move by China to gradually raise its gold reserves and also to gradually diversify its foreign holdings. While the World Gold Council recently played up the fact that net sales of gold jewelry had reached a record quarterly tally of $11.4 billion in most recent quarter, they also had to admit that the actually tonnage (demand) declined a bit due to price volatility. In general, the World Gold Council expects gold to overcome a large portion of the high cost/volatility demand hit recently noted by the trade, mostly because they think that rising gold prices actually enhances the overall desirability of the metal. Positive talk from Australian traders overnight centered on the prospect of more Dollar driven gains, while Asian traders once again tossed around the idea that pre-holiday jewelry buying was poised to lift gold prices consistently in the coming weeks. While gold prices have fallen back from their recent highs, the market would seem to have solid support on the charts at $627.9 and it would also seem to have new found respect from the prospect of a change in Chinese reserves. In fact, it is possible that the Chinese story helps the gold market absorb what might be considered mostly bearish economic report flow this week. In fact, without the Chinese development, we would suspect that December gold would see a retest of the $620 level this week. However, ongoing beliefs that the Dollar is set to slide, combined with the generally bullish mentality in the Asian and Indian gold markets, suggests that the gold market is going to embrace the bullish developments and discount the bearish developments. In short, our view toward the market is bullish, but the failure to hold above $623.6 early this week could dent sentiment and perhaps temporarily diffuse the upward motion in prices.

SILVER:
SILVER MARKET FUNDAMENTALS: Without a distinctly positive early tilt from the gold market this morning, December silver might tend to waffle around the $13.00 level. It does seem like the silver market is tracking the gold market and therefore the recent weakness in the base metals markets isn't as undermining of silver prices as it could have been. However, as mentioned in the gold commentary this morning, it would seem like the active US economic report slate this week, is set to give the bear camp a bit of an edge, especially with the general expectation calling for declines in both the CPI and PPI readings. In fact, many traders think that the silver market will be vulnerable to selling this week, unless there is a distinct downside extension in the Dollar, in the wake of the numbers this week. Fortunately for the bull camp, the recent rise in silver exchange stocks and the excessive weakness in copper and other base metals prices has yet to spark ideas that physical demand for silver is set to outweigh improving investment interest. In fact, the main focus of the silver trade is probably set to remain fixated on the flight to quality theme. We suspect that December silver will fluctuate around and below the $13.00 level early this week, as it waits on fresh leadership from gold. As suggested already, the silver market will be vulnerable to the scheduled numbers throughout this week, but we suspect that international interest in the precious metals will end up carrying prices through the rough spot created by this week's numbers. However, we can't rule out periodic setbacks to $12.88 and perhaps even $12.80 basis the December contract.

METALS TECHNICAL OUTLOOK 11/13/2006

COMEX SILVER (DEC) 11/13/2006: Rising stochastics at overbought levels warrant some caution for bulls. 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 1332.3. The market is becoming somewhat overbought now that the RSI is over 70. The next area of resistance is around 1324.5 and 1332.3, while 1st support hits today at 1298.5 and below there at 1280.3.

COMEX GOLD (DEC) 11/13/2006: 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 tilt is slightly negative with the close under the pivot. The next upside objective is 639.9. The next area of resistance is around 634.7 and 639.9, while 1st support hits today at 625.5 and below there at 621.4.