Nell Sloane

Daily US Metals Commentary

July 12, 2005

METALS: OVERNIGHT CHANGES THROUGH 4:00 AM: GOLD +1.90, SILVER +5.50

London Gold Fix $426.95 +$1.95 LME COPPER STOCKS 28,775 metric tons +300 tons COMEX Gold stocks 5.645 ml oz -13,769 oz COMEX SILVER stocks 105.6 +317,754 oz

OVERNIGHT ACTION: Higher action off improving base metals sentiment & a weaker Dollar.

GOLD: With the Dollar streaking lower this morning and the base metals markets providing consistent buying interest, it is clear that gold is getting spillover interest. With aluminum and copper price action indicative of ongoing strong Asian buying, it would also seem like the funds have been inspired to buy gold and silver. Despite economic projections from the OECD, that could have sunk the Euro and in turn lifted the Dollar, it would seem that the Dollar has continued to slide and that means the gold market has avoided a selling threat. However, with the OECD suggesting that Euro zone growth will under perform the US, and will only see 1.25% growth in 2005 and 2% growth in 2006, it could be difficult to inspire gold buying through the Euro currency argument. However, despite the partially negative currency influence, it would seem that all the metals are capable of mounting a near term rise. In fact, seeing more coordinated gains in the metals hints at a bullish trend, but we suspect that momentum will be somewhat limited on the current run. On the other hand, with the US Trade Balance looming ahead of the market on Wednesday, it is possible that some buyers step into gold, in hopes of a soaring US Trade Deficit and the potential flight to quality lift that report has provided in the past. In fact, with the gold market recently reaching a short term technical oversold status, on the $23 slide off the late June high, we suspect that the August gold could manage to mount a run back to the $432 level in the coming 36 hours. On the other hand, given the positive bias, it would be defeating to see August gold fail to hold above the close-in pivot point support of $425.9.

SILVER: Like gold, the silver market is benefiting from a generally positive view toward the base metals markets. In fact, both copper and aluminum seem to have caught fire again, despite talk about slowing Chinese economic growth. We also think that silver was a little short term oversold off the late June slide of 82 cents! However, until the September contract can manage to rise back above the $7.20 critical pivot point, it remains in a partially negative chart pattern. The 100 day moving average comes in around $7.26 and with support coming from gold and the base metals, silver might be in a position to garner spill over buying from both physical market elements and financial market (flight to quality) aspects. On the other hand, the quasi consolidation action of the last 6 months, has left the market with significant overhead resistance on the charts and the silver market continues to carry a moderately overbought small spec and fund long positioning. The bias is up but the magnitude of the run is probably limited.

METALS TECHNICAL OUTLOOK 7/12/2005

SILVER (SEP) 07/12/2005: The rally brought the market to a new contract high. The stochastics indicators are rising from oversold levels, which is bullish and should support higher prices. The major trend has turned down with the cross over back below the 18-day moving average. The market setup is supportive for early gains with the close over the 1st swing resistance. The near-term upside target is at 717.0. Consider buying pull-backs since daily studies are bullish. The next area of resistance is around 714.0 and 717.0, while 1st support hits today at 707.1 and below there at 703.1.

GOLD (AUG) 07/12/2005: Momentum studies are still bearish but are now at oversold levels and will tend to support reversal action if it occurs. The market back below the 18-day moving average suggests the longer-term trend could be turning down. With the close over the 1st swing resistance number, the market is in a moderately positive position. The next downside objective is now at 423.0. The next area of resistance is around 427.8 and 429.1, while 1st support hits today at 424.8 and below there at 423.0.

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