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Daily Metals Commentary Monday December 06, 2010 www.nsfutures.com We welcome those who are interested in managed futures/options programs to visit our site at http://www.nsfutures.com/managed.cfm. PRECIOUS METALS COMMENTARY 12/06/10 A MODEST UPWARD BIAS IN GOLD & SILVER WITH A WEAKER BIAS IN PLATINUM OVERNIGHT CHANGES THROUGH 6:05 AM (CT): GOLD +7.60, SILVER +41.40, PLATINUM -11.00 London Gold Fix $1411.50 +$20.00 LME Copper Stocks 352,375 tons -1,250 tons Gold Stocks 11.486 million ounces -2,222 ounces, Silver Stocks 107.117 million ounces -276,160 ounces OUTSIDE MARKET DEVELOPMENTS: While equity markets in Asia were mixed, stock indices in Europe are generally lower overnight. The early indications for US stocks are for moderate losses this morning. The Dollar is generally stronger against the major currencies during overnight trading, although posting a small loss versus the Yen. In a television interview, Fed Chairman Bernanke said that it was possible that the Fed would spend more than the $600 billion originally proposed for quantitative easing measures. Euro zone Finance Ministers will discuss expanding the size of the EU rescue fund. A credit rating agency has downgraded Hungary's sovereign debt to one level above "junk" status. There are no major US economic indicators scheduled for release today. However, regional Fed President Lacker will give a speech during the session. GOLD GOLD MARKET FUNDAMENTALS: The February gold contract managed a higher high overnight but was initially unable to fully return to the contract highs that were forged on November 9th. However, the bull camp has to be happy with the markets capacity this morning to discount the strength in the US Dollar, but that is probably the result of renewed Euro zone and Eastern European debt travails. With talk that the EU might have to expand its bailout package beyond initial expectations, the markets seem to have rekindled fears of a "knock-on" influence in the Euro zone ahead. It is also possible that gold is garnering some lift off weekend suggestions from the US Fed Chairman, that more than $600 billion in QE2 might be needed to steer the US economy away from a deflationary environment. The gold market is apparently uninterested in bearish press coverage from an article over the weekend that seemed to tout equities over gold and that might suggest to some that the gold market is focused on QE2 and the safe haven argument off the Euro zone situation. Comex Gold Stocks were 11.486 million ounces, down 2,222 ounces. The Commitments of Traders Futures and Options report as of November 30th for Gold showed Non-Commercial traders were net long 244,799 contracts, an increase of 7,556 contracts. The Commercial traders were net short 289,270 contracts, an increase of 8,039 contracts. The Non-reportable traders were net long 44,471 contracts, an increase of 483 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 289,270 contracts. This represents an increase of 8,039 contracts in the net long position held by these traders. The path of least resistance is pointing upward today, as the trade remains fixated on the prospect of more EU trouble. It is also possible that gold is garnering some support from Bernanke comments on a weekend news program, as Bernanke hinted at an expansion of QE2 and the need to avoid deflationary conditions. While the Fed Chairman also said he was 100% confident that the US Fed could pull the plug on QE2 before inflation got on a roll, that angle is apparently being challenged by the gold market this morning. While gold has been able to rise in the face of a higher Dollar, that action probably serves to dampen the upward capacity in gold prices today. However, one can't discount the prospect of a return to the November highs, in the event that the French debt travails find any credibility in the headlines today. Critical support in the February gold contract is seen today at $1,406, with little in the way of resistance seen until the $1,411.40 level. SILVER SILVER MARKET FUNDAMENTALS: A big range up extension was initially seen overnight in the March silver contract, with the contract getting very close to the even number $30.00 level. A distinct rise above the $30.00 level might have created a fresh wave of headlines in the press and that in turn would probably have favored the bull camp. Like gold, the silver market has managed to discount or ignore the higher Dollar/weaker equity market environment this morning and that in turn suggests that silver is perhaps drafting off the prospect of inflation, in the wake of talk that Fed could expand the size of the QE2 program. It is also possible that silver is also garnering some support from flight to quality concerns off the Euro zone situation. Comex Silver Stocks were 107.117 million ounces, down 276,160 ounces. Silver stocks have declined 15 of the last 20 days. The Commitments of Traders Futures and Options report as of November 30th for Silver showed Non-Commercial traders were net long 34,820 contracts, an increase of 3,816 contracts. The Commercial traders were net short 51,895 contracts, an increase of 3,216 contracts. The Non-reportable traders were net long 17,076 contracts, a decrease of 599 contracts. Non-Commercial and Non-reportable combined traders held a net long position of 51,896 contracts. This represents an increase of 3,217 contracts in the net long position held by these traders. While the path of least resistance is pointing upward, the silver market doesn't exactly have a perfect bullish environment in place this morning. However, a rise in the Dollar and a weaker economic outlook is apparently being discounted by the silver trade and that highlights a mostly bullish tilt. However, the failure to hold above the Friday high of $29.49 could prove to be technically damaging to the bull case in silver. Overall the trend in silver is expected to remain up, with the market ultimately getting a bigger lift from the Fed's hints of more QE2 and or perhaps from the Fed's hints that easy money will remain in place for an extended period of time. Apparently when the Fed suggests that current conditions justify the ongoing aggressive use of QE2, and they in turn also suggest that they have 100% confidence that they can prevent an inflationary problem from their policies, that clearly gave rise to fresh inflationary speculation. METALS TECHNICAL OUTLOOK: Note: Technical commentary is based solely on statistical indicators and does not necessarily correspond to any fundamental analysis that may appear elsewhere in this report. COMEX GOLD (FEB) 12/06/2010: The moving average crossover up (9 above 18) indicates a possible developing short-term uptrend. Momentum studies are trending higher but have entered overbought levels. A positive signal for trend short-term was given on a close over the 9-bar moving average. The market has a bullish tilt coming into today's trade with the close above the 2nd swing resistance. The next upside target is 1439.8. The market is becoming somewhat overbought now that the RSI is over 70. The next area of resistance is around 1431.0 and 1439.8, while 1st support hits today at 1399.4 and below there at 1376.5. COMEX SILVER (MAR) 12/06/2010: A new contract high was made on the rally. Daily stochastics have risen into overbought territory which will tend to support reversal action if it occurs. The market's close above the 9-day moving average suggests the short-term trend remains positive. The market's close above the 2nd swing resistance number is a bullish indication. The next upside target is 3011.1. The 9-day RSI over 70 indicates the market is approaching overbought levels. The next area of resistance is around 2983.7 and 3011.1, while 1st support hits today at 2894.3 and below there at 2832.2. Futures and options trading involve substantial risk. The valuation of the futures and options may fluctuate, and as a result, clients may lose more than their original investment. In no event should the content of this website be construed as an express or implied promise, guarantee or implication by or from NSfutures Group or Fox Investments that you will profit or that losses can or will be limited in any manner whatsoever. 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