DAILY US METALS COMMENTARY 8/1/2006 www.nsfutures.com

METALS: OVERNIGHT CHANGE to 4:00 AM:London Gold Fix $635.50 -1.50 LME COPPER STKS 100,575 ml tns +3,125 tons GOLD stks 8.087 ml oz., unchanged COMEX SILVER stks 99.0 ml oz Dn 838,801 oz

OVERNIGHT ACTION: Tokyo gold was down and Dubai gold was undermined by talk of slower sales.

OUTSIDE MARKET DEVELOPMENTS: With the Dollar a touch higher this morning, the currency impact might be considered slightly limiting to the metals at the start of the session. In fact, with the Fed's Poole indicating yesterday that inflation remains a concern for the Fed, the Dollar seems to have come out from under what was previously considered a pretty negative bias. While silver and copper are
marginally higher in the early action today, the platinum market was somewhat weaker and that would seem to give off the impression that the metals markets lack clear consensus. In fact, it is possible that the market sees its ranges tighten into the ECB meeting on Thursday and ahead of the US non Farm payroll report on Friday. With oil prices also disjointed this morning and global equity prices marginally lower early today, the metals markets just aren't getting anything definitive supportive from outside market action.

GOLD

GOLD MARKET FUNDAMENTALS: It has to be a little defeating to see signs of slowing gold sales in Dubai, especially with the Press suggesting that the source of the slower sales (which were down 30% in the January through June time frame) was essentially unattractive pricing. However, that is too be expected with gold prices in January through June of 2005 time frame ranging between $410 and $448 an ounce and gold prices in January through June of 2006 time frame ranging from
$535 to $732 an ounce. With the macro economic outlook in the US seemingly slowing in the recent numbers, but the Fed still warning of ongoing inflation threats, the near term outlook for gold becomes complicated. In fact, with the Dollar a touch higher this morning and the trade eagerly awaiting the first speech by the incoming US Treasury Secretary, it would seem as if the currency impact on gold
today could end up being a bit negative. Many traders think that the incoming Treasury Secretary will be aggressive with respect to the "strong Dollar policy" but that would seem to conflict with the existing US hope of a faster appreciation of the Chinese currency. While some traders are suggesting that the Jewelry
Producer Price Index readings for June were supportive, because they showed a slight slowing in the rate of climb from the prior monthly reading, it is hardly consoling for the bull camp to discover that the Jewelry Producer Price Index has now risen by 19.7% in the May and June 2006 time frame. However, the December gold has managed to respect a pattern of higher lows overnight and it doesn't seem as if
the slightly negative overnight fundamental news flow has markedly undermined price action. With the gold market paying close attention to the Dollar lately and the outlook toward the Greenback slightly improved by some of the Fed commentary yesterday, and potentially supported again today by comments from the incoming Treasury Secretary, it is possible that prices see some pressure this morning.
In fact, in looking at the divergence in the metals markets yesterday and the early action today, it would seem like gold is currently the weakest precious metals market. In our opinion, the market has run into a bit of chart resistance at $650 and while weaker US numbers might initially undermine the Dollar and in turn support gold, seeing a weakening US economy eventually undermines several of the bull themes for gold. In short, we expected a temporary set back in gold
prices in the coming session, with the potential for a temporary end to the pattern of higher lows.

SILVER

SILVER MARKET FUNDAMENTALS: While the silver market seemed to outperform the gold market yesterday and might be poised to manage the same action again today, the market is only getting minimal support from the Press coverage on the recent decline of exchange stocks. However, there was an international story overnight
suggesting that the silver market looked to be a better bet than gold in the near term, but so far the mainstream Press just isn't playing up the idea that ready supply in silver is tightening and could become a more significant issue. While the silver market has seemingly outperformed the gold market over the last 24 hours, the charts seem to give off the impression of a tightening coiling pattern
instead of an up trend pattern and that could discourage some would-be buyers of silver in the near term. It is possible that pattern of slowing in the US economy and choppy equity market action is serving to undermine the physical commodity component of the silver market. Given the recent coiling action in the silver market and the lack of concentrated focus on the fact that COMEX silver stocks
fell below 100 million ounces, it would seem that the market is questioning the bull tilt. Furthermore, given the concern of slackening gold jewelry demand and the fear of overall economic slowing in the US economy, it is possible that silver is going to find it difficult to rise very far above the recent critical value
zone of $11.00 basis the September contract. Certainly the silver market could be the recipient of surprise flight to quality buying interest, but the latest escalation of the fighting in Lebanon and soaring natural gas prices didn't seem to rev up the spec buyers.

METALS TECHNICAL OUTLOOK 8/1/2006

COMEX SILVER (SEP) 08/01/2006: Stochastics are at mid-range but trending higher, which should reinforce a move higher if resistance levels are taken out. A positive signal for trend short-term was given on a close over the 9-bar moving average.

It is a slightly negative indicator that the close was under the swing pivot. The next upside target is 1159.8. The next area of resistance is around 1148.5 and 1159.8, while 1st support hits today at 1125.5 and below there at 1113.8.

COMEX GOLD (AUG) 08/01/2006: Momentum studies trending lower at mid-range should accelerate a move lower if support levels are taken out. A positive signal for trend short-term was given on a close over the 9-bar moving average. It is a mildly bullish indicator that the market closed over the pivot swing number. The next downside target is now at 624.0. The next area of resistance is around 638.6 and 641.6, while 1st support hits today at 629.8 and below there at 624.0.

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