With part of the financial markets closed due to a US Bank Holiday, the focus probably shifts toward the North Korean situation, which in the early action is apparently supportive of the precious metals. However, the metals will be presented with another US Fed speech from the Fed's Yellen around mid day and that could put the focus back on the pace of the US economy.

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DAILY US METALS COMMENTARY 10/09/06

METALS: OVERNIGHT CHANGES THROUGH 4:00 AM: GOLD +6.60, SILVER +25.00

London Gold Fix $578.25 +7.65 LME COPPER STKS 113,700 ml tns
-350 tons
GOLD stks 7.888 ml oz., +94,910 oz COMEX SILVER stks 105.2 ml oz
-11,783 oz

OVERNIGHT ACTION: Apparently the talk of political repercussions against North Korea has lifted gold in the early going.

OUTSIDE MARKET DEVELOPMENTS: With part of the financial markets closed due to a US Bank Holiday, the focus probably shifts toward the North Korean situation, which in the early action is apparently supportive of the precious metals. However, the metals will be presented with another US Fed speech from the Fed's Yellen around mid day and that could put the focus back on the pace of the US economy. On the other hand, oil prices have come into the new week a bit higher and given the added lift from the North Korean missile test, the bounce in oil prices might serve to pull the metals markets out from under the pattern of selling that seen early last week. The big economic report release of the week might be the US Retail sales reading late in the week, or it could also be the FOMC minutes release at mid week but as unless the economic developments offer up something clearly fresh and succinct, the precious metals markets might be left to their own devices.

GOLD:
GOLD MARKET FUNDAMENTALS: Apparently the North Korean nuke test has prompted early buying despite some overnight suggestions that the Chinese response to the test was lacking. On the other hand, some political analysts have suggested that the tone of the Chinese response to the test was significantly more aggressive than is usually expected from China and that might hint at a bigger push against North Korea at the UN. Unfortunately Chinese gold actually ended lower, so the domestic traders in China weren't particularly emboldened by the weekend developments. In fact, given the Chinese gold market reaction overnight, it would seem like the major focal point, of a large portion of the gold trade, is once again the direction of the oil market. With the weekend Press playing up the idea that OPEC might be poised to defend the $60.00 level, instead of other arbitrary levels of $57.00 or $55.00, there seems to be an ongoing undertone of support for gold prices. On the other hand, the market still has to contend with macro economic slowing fears, which might be enhanced somewhat by the ongoing correction in the equity markets. With the exception of a mid day US Fed speech today, the gold market will probably have to take its cues from the oil and equity markets. With a gap up move in gold overnight the short covering attempt from last week is given a further boost. However, with the October 3rd Commitment of Traders with Options report showing the Gold Non-Commercial position to be net long 64,059 contracts and the Non-reportable position net long 25,473 contracts, the combined spec and fund long was still nearly 90,000 contracts and that means the gold market is capable of becoming overbought rather easily. In fact, with the overnight highs, the December gold contract comes into the action this morning $15 per ounce above the level where the COT report was measured and that could put the net spec long back above 100,000 contracts. In short, we can't argue against a rise to close-in resistance of $585.5 and possibly to $588 in the event that oil provides some consistent leadership.

SILVER:
SILVER MARKET FUNDAMENTALS: Like the gold market, the silver market has also managed a gap up rally in the early action and also like the gold market, silver seems to be getting a lift from the oil market. Certainly seeing gold start the session out on a positive footing and also seeing copper extend last week's bounce, adds to the bullish bias in silver prices. On the other hand, the US equity market is showing early signs of weakness and that added to the corrective tone that was seen toward the end of last week. It should be noted that the overnight rally pushed the December silver contract back above the 200 day moving average and that might inspire some funds and technical players to look favorably toward the market at the start of the new week. The move above a key moving average is only a partial countervailing force to the recent concern of slack physical or industrial demand in silver. On the other hand, the silver market can probably expect ongoing support from the hope of Indian import demand for silver, while the positive action in the rest of the metals markets early today, probably moderates the potential negative impact on silver from the early slump in equity prices this morning. While we can't rule out more light spec buying and a move up to close-in resistance of $11.50, the environment certainly isn't conclusively supportive for silver prices. With the October 3rd Commitment of Traders with Options report showing the Silver Non-Commercial position to be net long 15,695 contracts and the Non-reportable position also net long 18,770 contracts the silver market is modestly spec long. However, at the overnight highs, the December silver contract was roughly 40 cents above the level where the COT report was measured and that probably means the net spec long position starts the week out net spec long roughly 37,000 contracts. Minor gains possible but overhead resistance is thick just above the $11.50 level and the macro economic outlook remains somewhat limiting to prices.

METALS TECHNICAL OUTLOOK 10/9/2006

COMEX SILVER (DEC) 10/09/2006: Declining momentum studies in the neutral zone will tend to reinforce lower price action. The close below the 9-day moving average is a negative short-term indicator for trend. The daily closing price reversal up is a positive indicator that could support higher prices. The market has a slightly positive tilt with the close over the swing pivot. The next downside objective is now at 1076.8. The next area of resistance is around 1134.5 and 1144.8, while 1st support hits today at 1100.5 and below there at 1076.8.

COMEX GOLD (DEC) 10/09/2006: 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. The upside daily closing price reversal gives the market a bullish tilt. The close over the pivot swing is a somewhat positive setup. The next downside target is 560.3. The next area of resistance is around 583.7 and 587.9, while 1st support hits today at 569.9 and below there at 560.3.