DAILY US METALS COMMENTARY 09/19/06

METALS: OVERNIGHT CHANGES THROUGH 4:00 AM: GOLD -3.10, SILVER -16.00

London Gold Fix $582.50 +1.00 LME COPPER STKS 121,825 ml tns
Unchanged
GOLD stks 7.789 ml oz., -229,973 oz COMEX SILVER stks 105.6 ml oz
Unchanged

OVERNIGHT ACTION: Despite some follow through attempts in Tokyo, European and early US gold prices have softened.

OUTSIDE MARKET DEVELOPMENTS: With a moderate reversal from early gains in gold overnight and world equity markets giving off signs of moderate to significant weakness, the environment isn't exactly conducive to further short covering gains in the gold and silver markets. In fact, with all the metals off and the Dollar marginally higher overnight, the precious metals are confronted with a total shift from the conditions seen on Monday morning. About the only constant from the action Monday, is that oil prices are starting the session off weak again and that would also seem to contribute to the selling tilt. With US housing starts and the PPI report this morning both expected to show slower growth this morning and only minimal increases in inflation readings expected, the scheduled data mostly looks to undermine metals prices today. It is also likely that the looming FOMC meeting is serving to cap the precious metals markets.

GOLD:
GOLD MARKET FUNDAMENTALS: While the gold market managed an impressive bounce yesterday and was reportedly seeing signs of bargain hunting buying, that buying interest has apparently dried up in the action today. In fact, with the FOMC decision looming ahead, and the most recent track of inflation readings showing muted or controlled inflation, one would not expect the Fed decision to be a major negative to gold but the market seems to be giving off that impression. However, with the equity market moderately softer this morning, the gold market seems to be generally disappointed with the current pace of growth and perhaps even the prospect of sagging physical demand. With the sharp slide in gold prices in the month of September, the Dollar sitting near an upside breakout point on the charts and a lack of geopolitical anxiety, the outlook for gold investment demand is also somewhat undermined. In short, unless there is a shift in the macro economic viewpoint or a recovery in oil prices, it is possible that a cloud continues to hang over the gold market through the Wednesday FOMC meeting. While the gold market deserved a bit of a short covering bounce yesterday, the fundamental and technical condition is simply not present to forge upside action in the coming sessions. In fact, under proof of more slowing, muted inflation readings, a higher Dollar and lower equity prices, it is possible that December gold falls right back to the September lows just above the $575 level. Furthermore, in considering the last COT report Spec long reading in gold, we are not sure if the December gold is capable of holding above the $575 level over the coming two sessions.

SILVER:
SILVER MARKET FUNDAMENTALS: After a brief recovery and favorable outside market action in the gold and copper markets, the silver market is once again confronted with a broad wave of selling interest. In fact, with a higher Dollar and lower equity prices overnight, the silver market seems to be right back into the bearish tide of information flow that was present for most of last week. With German ZEW readings overnight falling to the lowest levels since 1999 and the US numbers this morning also expected to be weak, the physical demand argument in silver has turned negative again. Furthermore, with the gold market soft and the Dollar higher, it is possible that investment interest in silver is also set to tail off again. Close-in critical support in the December contract is though to be at even numbers of $11.00, while the closely watched 200 day moving average is seen at $11.18 today. We suspect that the path of least resistance is pointing down today, as the numbers scheduled for release today are not expected to alter the initial bias in prices and the majority of the outside market influences are negative for silver this morning. In fact, with an early failure at the $11.00 level, the December silver might be poised for a gentle slide down to $10.86, but we think that the aggressive panic style selling seen for most of last week has mostly run its course already. However, in order to fully throw off the downward bias in prices, might require a pause at the Fed and persistent sustained gains in equity prices.

METALS TECHNICAL OUTLOOK 9/19/2006

COMEX SILVER (DEC) 09/19/2006: Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The close below the 9-day moving average is a negative short-term indicator for trend. Market positioning is positive with the close over the 1st swing resistance. The next downside objective is now at 1071.8. The next area of resistance is around 1152.5 and 1165.8, while 1st support hits today at 1105.5 and below there at 1071.8.

COMEX GOLD (DEC) 09/19/2006: Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The market's close below the 9-day moving average is an indication the short-term trend remains negative. Market positioning is positive with the close over the 1st swing resistance. The next downside target is 581.0. The next area of resistance is around 597.8 and 601.1, while 1st support hits today at 587.8 and below there at 581.0