DAILY US METALS COMMENTARY 09/15/06

METALS: OVERNIGHT CHANGES THROUGH 4:00 AM: GOLD -1.40, SILVER -4.50

London Gold Fix $578.60 -14.80 LME COPPER STKS 121,000 ml tns
+2,515 tons
GOLD stks 8.019 ml oz., Unchanged COMEX SILVER stks 104.8 ml oz
+255,680 oz

OVERNIGHT ACTION: More negative action overnight as Tokyo Gold was limit down!

OUTSIDE MARKET DEVELOPMENTS: It seems that persistent weakness in oil prices is promoting liquidation in the metals market, as many funds apparently think that persistently lower oil prices is the wrong environment for gold and silver. With the Dollar initially showing signs of strength today and word equity markets only moderately higher overnight, there doesn't seem to be much change in the outside market influence for the metals and therefore the sellers don't look to be threatened. In fact, with the US scheduled to release a CPI reading for August this morning and the trade largely expecting inflation to remain under control, the liquidation impetus in gold and silver might continue. In fact, against the backdrop of sharply falling oil prices, a minor up tick in the CPI could simply be discounted in the current environment. In short, the broad based commodity liquidation effort might continue to haunt the metals today unless the CPI is hot and the US equity market signals better economic times ahead with an upside extension.

GOLD:
GOLD MARKET FUNDAMENTALS: With the initial bias negative and the trade seeing a number of Press Headlines trumpeting gold fund liquidation, off falling inflation and falling oil prices, it would seem like the path of least resistance is pointing downward. In fact, failing to see the US CPI come in above +0.3% might allow December gold to return to the overnight lows. In a somewhat positive development Iamgold is expected to buy Cambior for $1 Billion in stock and that sends off a message that some gold assets are still being seen as undervalued. However, the tone of the headlines this morning is still mostly bearish toward commodities as a group. In fact, one entity overnight suggested that the supply of many commodities is rising, just as demand is falling off and that highlights the bearish spin that is mostly controlling market sentiment. In the end the December gold did manage a new low for the move again overnight but it did manage to recoil away from that low, as if the selling effort was overdone. Given the declines overnight, the December gold is now down almost $70 an ounce since the September high, and when one compares that break to the May and June break of $194 per ounce, there just isn't a good argument to suggest that the market is fully liquidated and technically balanced. The path of least resistance is down and the $575 level would seem to be a logical targeting under the current collection of forces. In fact, with the market fearing higher interest rates, slowing growth and declining oil prices, there just isn't a fundamental hook to hang bullish views on in the current market. In short, until the sharply lower oil prices result in resurgent macro economic views, or inflation is found to still be a potential problem, it is extremely difficult to come up with a bullish theme in the gold market. If the CPI fails to alter existing sentiment and in the process send gold a little higher this morning, we suspect that a run at $575 is possible today. In fact, if the gold market rallies this morning off the CPI report, it is still possible that $575 will be tested early next week.

SILVER:
SILVER MARKET FUNDAMENTALS: With the rest of the precious metals providing a back drop of negative sentiment it is not surprising that silver has given in to the selling pressure. With stocks of silver holding moderately above levels that could be considered critical, investment demand for metals currently waning and the industrial or demand driven focus in silver also back on its heels, the environment would seem to favor the sellers. In fact, with the December silver falling below a series of critical technical levels in the prior two sessions and the upcoming positioning report probably not catching all the liquidation impact, it is possible that the bear camp will be presented with very little adversity to their positions. For the time being, the silver market appears to be under pressure as a result of its financial and physical commodity market standing. With another minor new low for the move and the December contract failing to hold above the 200 day moving average there might be little to keep the December from sliding down to the next critical chart support level of $10.64. In fact, we would be surprised if the December silver were even able to climb back above the $11.00 level, without a direct lift off this mornings US CPI reading. The path of least resistance continues to point downward.

METALS TECHNICAL OUTLOOK 9/15/2006

COMEX SILVER (DEC) 09/15/2006: Daily stochastics are trending lower but have declined into oversold territory. The market's close below the 9-day moving average is an indication the short-term trend remains negative. The outside day down is a negative signal. The close below the 1st swing support could weigh on the market. The next downside target is 1050.3. With a reading under 30, the 9-day RSI is approaching oversold levels. The next area of resistance is around 1122.5 and 1160.3, while 1st support hits today at 1067.5 and below there at 1050.3.

COMEX GOLD (DEC) 09/15/2006: Momentum studies are declining, but have fallen to oversold levels. The market's close below the 9-day moving average is an indication the short-term trend remains negative. The close below the 1st swing support could weigh on the market. The next downside objective is now at 572.8. With a reading under 30, the 9-day RSI is approaching oversold levels. The next area of resistance is around 594.1 and 605.3, while 1st support hits today at 577.9 and below there at 572.8.