DAILY US METALS COMMENTARY 09/21/06

METALS: OVERNIGHT CHANGES THROUGH 4:00 AM: GOLD +0.00, SILVER -0.50

London Gold Fix $580.50 +4.25 LME COPPER STKS 123,325 ml tns
-600 tons
GOLD stks 8.024 ml oz., +36,893 oz COMEX SILVER stks 105.1 ml oz
-447,180 oz

OVERNIGHT ACTION: Chinese spot gold minimally higher, European gold minimally lower.

OUTSIDE MARKET DEVELOPMENTS: While the copper market is moderately higher this morning and that might be seen as a positive to the metals, the precious metals are mostly trading lower in the early action today and that would seem to leave a cloud hanging over the market. On the other hand, the Dollar is marginally lower and international equity prices are positive and even oil prices are higher and that means several outside market forces are supportive and that is in contrast to the prior session. With the FOMC meeting past and the results not particularly surprising, it is possible that the precious metals markets get back to their own internal fundamentals. However, the markets will probably have a passing interest in the US Leading Indicator report that is due out this morning and the trade generally expects that report to confirm more slowing and that could present the metals with some fresh negative macro economic sentiment.

GOLD:
GOLD MARKET FUNDAMENTALS: With the US Fed pausing as expected and hinting at the potential for more hikes later this year, one might expect the gold market to continue to struggle. In fact, with the Leading Indicator report this morning expected to show a contraction, the bear camp might be emboldened again. On the other hand, the energy complex is showing some signs of strength this morning and the comments at the UN over the last 48 hours would seem to turn up the geopolitical anxiety a bit. However, one almost comes away from the UN developments this week with the understanding that the "majority" of the UN is against any formal action toward Iran and perhaps more importantly that a growing block at the UN will simply be against anything sponsored by the US. In short, a stalemate at the UN could be seen as a negative to gold. In another negative note overnight, DRDGold announced that they would attempt to increase production by as much as 1/3rd this year, in an effort to offset three straight years of losses. However, the fundamentals aren't all negative from the prior close, as a number of Press outlets continue to report on evidence of fresh buying from jewelry sources, while others are suggesting that Asian speculators were mostly responsible for the bargain hunting buying around the recent lows. In an offshoot to that Asian speculative interest story, there are rumors circulating in China that an industrial mining group might be making a bid for Anglo American, with some suggesting that the group might already have acquired up to 3% of the company. While a fresh surge in investment demand might truncate the recent slide in gold, that interest might have a difficult time throwing off the broad based commodity selling wave, especially if the US numbers today continue to show weakness. With the gold market managing to coil above the $575 level for an extended period of time and a number of short term technical indicators giving off buy signals, it is possible that the market might try to mount a bit of a bounce. In fact, with the rumors of Chinese speculation in the gold market and the equity market showing signs of life, the patently deflationary commodity selling binge is partially dampened. Therefore, we see the chance for a bounce today but typically, physical buying isn't nearly as exciting as flight to quality or inflationary buying and that could mean that the bounce is limited and unimpressive. In the near term, the December contract should be able to mount a bounce to $595 but to really alter existing sentiment, might require a close above $600.

SILVER:
SILVER MARKET FUNDAMENTALS: With the silver market getting beyond the FOMC meeting without a patently discouraging result and world equity markets continuing to carve out gains, the bear camp should have trouble dominating near term action. In fact, the aggressive slide in oil prices and the persistent gains in the equity market seem to be hinting at better economic conditions ahead, and that should mean the recent selling environment is challenged. A modest decline in exchange stocks overnight helps downplay the recent less than supportive supply component in silver, but the main driving force in the silver market continues to be the prospect of or the lack of prospects for near term demand. With some bargain hunting/jewelry demand showing up in gold, the silver market might logically expect some light spillover buying ahead. In fact, with the copper market this morning showing moderately significant upside action, it would seem like the silver market is now positioned in a more positive light. Given the interday action of the last several weeks, the most consistent positive correlation between silver and outside market action, has been with the equity market and world equity markets are in a generally positive mode into the opening this morning. As in the gold market, a number of short term technical indicators are into buy modes on the charts and after the recent consolidation around the $11.00 zone, it does seem like the December contract has found some form of solid value. Given the magnitude of the break in silver recently we have to think that the spec and fund long positioning is now mostly leveled and that could mean that the $10.81 level has become solid support. Like the gold market, we suspect that the silver market can bounce a bit, but we don't see current conditions to be so powerful that the market will completely throw off the liquidation threat. Near term upside targeting in the December silver for a corrective bounce is $11.32.

METALS TECHNICAL OUTLOOK 9/21/2006

COMEX SILVER (DEC) 09/21/2006: 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. With the close over the 1st swing resistance number, the market is in a moderately positive position. The next downside objective is now at 1076.7. The next area of resistance is around 1131.3 and 1145.6, while 1st support hits today at 1096.8 and below there at 1076.7.

COMEX GOLD (DEC) 09/21/2006: Daily stochastics declining into oversold territory suggest the selling may be drying up soon. The market's close below the 9-day moving average is an indication the short-term trend remains negative. The daily closing price reversal up on the daily chart is somewhat positive. The close over the pivot swing is a somewhat positive setup. The next downside objective is now at 574.8. The next area of resistance is around 592.0 and 598.1, while 1st support hits today at 580.4 and below there at 574.8.