DAILY US METALS COMMENTARY 06/13/06

METALS: OVERNIGHT CHANGES THROUGH 4:00 AM: GOLD -15.30, SILVER -53.00

London Gold Fix $590.75 -17.00 LME COPPER STKS 105,500 ml tns
-6,450 tons
GOLD stks 7.795 ml oz, Unchanged COMEX SILVER stks 103.8
ml oz, -1,476,014 oz

OVERNIGHT ACTION: Another new high in the Dollar prompted widespread selling interest.

GOLD: OUTSIDE MARKET DEVELOPMENTS: The combination of a sharply higher US Dollar and lower oil prices has the metals markets reeling overnight. It almost seems like the gold market is coming under relatively more pressure than the rest of the metals markets and that powers home the idea that the selling pressure is at least initially being prompted by currency market action. With global equity market action also weaker overnight, it is not surprising that a broad based negative physical commodity market bias is being presented to the market this morning. With a noted currency trader "Soros" suggesting that commodities prices are poised for even more declines ahead, the outside market pressure is apparently accentuated even further.

GOLD MARKET FUNDAMENTALS: Despite the fact that China posted some very impressive retail sales readings overnight, the gold market is apparently still concerned about slowing US growth and is mostly expecting the US to raise interest rates again in the June FOMC meeting. With a long list of Fed members expressing concern for inflation yesterday, it is clear that the market is fearful of the "treatment" for inflation, instead of being supported by the news that inflation is still very much a consideration at the Fed. With expectations for the PPI today showing a slight cooling in the magnitude of the PPI gain in past months, it seems like the gold market will continue to spin most fundamentals toward the bearish interpretation. Apparently the gold market is simply not in a position to be lifted by the presence of a general rise in inflationary readings. In fact, the gold market is fixated on the idea that the Fed is set to act to snuff out inflation, with the consequence of that aggressive stance, a persistent firming of the US Dollar. To round out the slightly bearish broad based selling tilt in gold this morning, the trade sees a host of markets like, corn, crude, copper and silver also under aggressive early pressure. With the August gold falling below psychological support of $600 overnight, liquidation pressure is expected to control sentiment in the coming session. With the last COT report showing a moderately overbought and vulnerable technical condition in gold and the fundamental posture in the market fearful of further weakening in the US economy, up ticking inflationary readings simply make the Fed a menace to gold. In the near term it is possible that $592 fails to support August gold and prices slide down to the next lower support zone of $587. However, we do see a very solid fundamental value zone in August gold between the $589 and $555 level but without a beneficial impact from inflation, an ongoing negative economic view and a rising Dollar, one can't get in a hurry to pick a bottom.

SILVER: OUTSIDE MARKET DEVELOPMENTS: With the outside markets screaming commodity liquidation this morning, the silver market is already feeling the pressure in the early action. With the copper and equity markets aggressively joining the progression toward lower prices and big name traders predicting even more declines ahead, it is clear that the broad market influences are favoring the bear camp in the early going. With the added weakness in grain prices overnight, it would seem like fund players will continue to adopt a defensive posture toward most markets.

SILVER MARKET FUNDAMENTALS: While exchange stocks showed another significant decline again overnight, the stock issue has yet to reach a level that has attracted the mainstream media's attention. Interestingly enough, the Silver IShares have continued to hold roughly 66.9 million ounces of silver, despite the ongoing aggressive price pressure being thrown at those investors. In short, part of the silver long position is apparently willing to hold against adversity. However, with the broad based commodity price weakness facing the market today, it is clear that physical and investment demand is simply unable to counter the general selling pattern. Right now, the silver market is being viewed as a physical commodity that is falling from favor. Near term downside targeting is now seen at $10.00. However, with the market on the run, the macro economic outlook suspect and the Dollar strong, there are just too many negatives to discount. With the market almost totally discounting the ultra strong Chinese retail sales figures overnight, it is clear that the trade is simply adopting a bearish bias toward prices. About the most positive thing that can be said about silver, is that the rate of decline in prices is sure to balance the technical condition quickly, as we suspect that the silver market entered the session yesterday, with a net spec long position of only 20,000 contracts. With the punishing slide this morning and a follow through down to $10.23, it is possible that the spec long position is mostly eliminated. However, before entering this market on the long side, we feel that the market still needs another big down draft. Fresh longs in at current levels, probably need to risk those positions to at least $9.81!

METALS TECHNICAL OUTLOOK 6/13/2006

COMEX SILVER (JUL) 06/13/2006: Momentum studies are declining, but have fallen to oversold levels. The market's close below the 9-day moving average is an indication the short-term trend remains negative. It is a slightly negative indicator that the close was under the swing pivot. The next downside objective is now at 1077.3. The next area of resistance is around 1122.5 and 1141.3, while 1st support hits today at 1090.5 and below there at 1077.3.

COMEX GOLD (AUG) 06/13/2006: 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. It is a slightly negative indicator that the close was under the swing pivot. The next downside target is now at 603.4. Some caution in pressing the downside is warranted with the RSI under 30. The next area of resistance is around 615.5 and 620.1, while 1st support hits today at 607.1 and below there at 603.4.

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