Institutional Sentiment & Analysis Weekend
Report

For the week of July 31, 2006 -  August 4, 2006



By Mark Young of Equity Guardian Group, LLC.

Investment Management & Research

EquityGuardian.com
WallStreetSentiment.com

Seasonal Positives Still In Play

Traders ran for the exits after some scary infation data on Tuesday, but little technical damage was done.

We are still in the usually bullish seasonal period starting on the last day of the month and running through the first five days of the new month.

METALS: OVERNIGHT CHANGE to 4:00 AM: GOLD +1.20, SILVER +8.00

London Gold Fix $648.25 +12.75

LME Copper stocks 101,325 ml tns, +750 tons

COMEX Gold stocks 8.087 ml oz., unchanged

COMEX Silver stocks 98.4 ml oz
Dn 539,199 oz

OVERNIGHT ACTION: A slightly bullish tilt overnight despite a slight Dollar rise.

OUTSIDE MARKET DEVELOPMENTS: With the Precious metals markets showing a mostly positive track in the early action today, it would not seem like marginally higher US Dollar action is serving to undermine sentiment. However, with oil and equity prices both higher overnight, one might assume a mostly bullish outside market environment for the metals markets into the opening this morning. In fact, with the US economic report slate mostly empty today, the metals markets will probably be able to pay more attention to potentially supportive inter-market relationships.

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

Federal Reserve Hints

Waiting For Data

Federal Reserve governors, speaking on Monday signaled that the central bank is well aware of the fact that any more rate hikes could be one too many.

Janet Yellen, President of the San Francisco Fed, told an audience on Monday that the central bank is "at a delicate point for policy, when we are close to the end of the road," but was careful to note that she "was not signaling what the Fed would do Aug. 8," according to MarketWatch.com.

In the June 30th WrapUp I reported to you that the “Summer Rally� had begun. As the market rallied into early July, I wrote in my short-term updates to subscribers that a short-term top was due and that the market should move lower once again into a short-term low in July. As it turns out, this is exactly what happened, but in the process the Industrials moved below the June low on an intra day basis. On a closing basis the June low held. When looking at the S&P 500, the June low held on both a closing and an intra day basis. What this left us with is a double bottom and the attempt at a summer rally is still in the making. If you listened to last week’s interview I said then that I was looking for the advance out of the July low to continue, and it did. However, I still maintain the position that overall this summer rally is a counter-trend affair. Yes, it could better the May highs, but I have yet to see anything to change my mind about this at this time. I still believe that this rally will most likely be a failure.

This past week in the stock market provided us with quite a few inter-market relationships and interesting observations. Tonight’s headline says it all: "Positive and negative divergences," for that’s what we see throughout the market right now.

The market’s rally in the past few days has been brought to us courtesy of the super bearish sentiment that showed up in the AAII investor sentiment poll of last week, which showed a whopping 57% of investors had turned bearish compared to only 28% bullish. That much disparity in favor of the bears was sure to produce a rally as we talked about earlier and the banks were among the beneficiaries of the rally as expected. (As we write this the percentage of bears has backed off a bit but is still quite high at 43%. Meanwhile the bulls gained some and are closer to 36%. Thus, short-term market psychology is still favorable from a contrarian standpoint.

Those of us in the investment business who advocate individual gold ownership are often accused of being unpatriotic. In part, this charge stems from the dire economic forecasts that often form the basis for such recommendations in the first place. However, our critics often confuse the recognition of a problem and the belief that its inevitable resolution will be painful, with an actual preference for such an outcome in the first place.

I can not speak for everyone, but as a self professed “gold-bug� myself, if there were any way for America’s many economic imbalances to be resolved painlessly, of course I would root for that outcome. However, as this is no more possible than a heroin addict kicking the habit without going through withdrawal, it makes no sense to hope for it simply to satisfy someone else’s misguided concept of patriotism. In fact, from my perspective, letting my emotions guide my investment recommendations, even under the pretext of patriotism, would be completely irresponsible.

Picking Gold Mining Stocks

Slowly but surely, a shift of capital continues in the financial markets.  As investors diversify away from the underperforming general stock and bond markets, commodities are quickly becoming one of the go-to investment classes.

Investors are finally starting to heed attention to the historically-low correlation commodities provide to the conventional stock/bond portfolio mix.  And with inflation fears gripping the markets, the commodities hedge provides refuge for the sensible.

Oil And Commodity Summary:

Hanging On The Headlines

The oil markets are positioned for a significant move, as several factors are converging.

The combination of an increasingly complex situation in Lebanon, refinery problems around the world, increasing problems in Nigeria, a major heat wave, the onset of the usually difficult part of hurricane season, and increasing demand for gasoline, are keeping prices stable or on the rise accross the board.