GOLD:
GOLD MARKET FUNDAMENTALS: Apparently some in the market are having second thoughts on when the Chinese Central Bank might move to diversify their currency reserves. However, while some doubt that any near term change will be seen, most traders see the Chinese diversification threat as a long term supportive development for gold prices. In some positive overnight news, the Japanese GDP reading came in slightly better than expected and that should countervail some of the weakness in gold that might have been derived as a result of the softer German CPI reading and the disappointing German ZEW reading. In other overnight news, the South African Chamber of Mines indicated that South Africa mines actually produced 2.4% more gold in the quarter ending in September, than in the prior quarter, but that negative influence was tempered by the realization that the year over year comparison of production showed 2006 output to be about 6.8% lower than in the same period of 2005. There was also talk about soaring Chinese investment demand for gold overnight, as Chinese individuals are apparently buying gold aggressively in hopes that prices will appreciate. In the end, the recent pattern of international bullishness and US skepticism continues. One has to think that the early set of numbers today will be partially defeating to the gold market. In fact, we would at least expect to see a decline to $623.6 and perhaps to $619 if the retail sales are weak and the PPI is soft enough to hint at deflation. However, there appears to be a significant amount of bargain hunting buying waiting in the wings to rescue gold in the face of weakness, especially with the Chinese diversification story operating in the background. We continue to think that traders should be long February gold futures on declines to $626 but that traders should also wrap up the position with short February $685 calls for 920 and long February 600 puts for 1000. In fact, with the November 7th Commitment of Traders with Options report showing the Gold Non-Commercial position to be net long 79,368 contracts and the Non-reportable position also net long 37,372 contracts, the combined spec and fund long position is 116,000 contracts and that leaves the market vulnerable to periodic profit taking.

SILVER:
SILVER MARKET FUNDAMENTALS: The silver market continues to take a significant amount of daily directional guidance from the gold market, but it is also clear that weakness in the base metals markets are an added undermine for the bull camp. However, if the gold market can't manage to benefit from the talk of Chinese diversification, then the silver market has even less chance of benefiting from that news. With platinum seeing some residual selling overnight in Asia and the US inflation and growth numbers due for release today, expected to favor the bear camp, it would seem like the fundamentals favor the downside this morning. In fact, international economic news overnight was mixed at best and with the flow of the US data, it is possible that the overall macro economic outlook will be seen as mostly soft today. In conclusion, the silver market isn't getting much in the way of positive early support from the gold market and the physical metals fundamentals also look at little suspect in the early going. It should be noted that some traders have pointed to a critical up trend channel support line in the December silver down at $12.73 today as a key inflection point. With the November 7th Commitment of Traders with Options report showing the Silver Non-Commercial position to be net long 27,330 and the Non-reportable position also net long 21,019 contracts, the silver market is a bit vulnerable to profit taking. However, as mentioned already the December silver does seem to have solid trend channel support at $12.73 and therefore we doubt that silver will have to fall down to even lower chart support of $12.57 in the wake of the scheduled US economic reports.

METALS TECHNICAL OUTLOOK 11/14/2006

COMEX SILVER (DEC) 11/14/2006: A bearish signal was triggered on a crossover down in the daily stochastics. Momentum studies are trending lower from high levels which should accelerate a move lower on a break below the 1st swing support. A positive signal for trend short-term was given on a close over the 9-bar moving average. The market's close below the 1st swing support number suggests a moderately negative setup for today. The next downside target is now at 1262.8. The next area of resistance is around 1300.0 and 1308.8, while 1st support hits today at 1277.1 and below there at 1262.8.

COMEX GOLD (DEC) 11/14/2006: A bearish signal was triggered on a crossover down in the daily stochastics. Momentum studies trending lower from overbought levels is a bearish indicator and would tend to reinforce lower price action. A negative signal for trend short-term was given on a close under the 9-bar moving average. The market tilt is slightly negative with the close under the pivot. The next downside target is 619.3. The next area of resistance is around 628.7 and 630.9, while 1st support hits today at 622.9 and below there at 619.3.