In This Issue

Good Friday Trading Schedule

Precious Metals Report

Reports and Expiration Notices

April 12th, 2006 — Issue #322

Good Friday Trading Schedule

(all times are CST)

Thursday, April 13

Friday, April 14

Sunday, April 16

Precious Metals Report

by Tom Pawlicki, Man Financial

Price Outlook/Trade Recommendations

Today's trade is expected to focus on the upside breakout in crude oil and on a potential bearish reversal in the metals markets. Yesterday's trade in silver created a bearish reversal pattern which suggests that the market could trade lower in the near-term. The pattern was made after silver has traded within a rising channel pattern for the past four months.

Gold: Gold is expected to find weakness today based on yesterday's negative action. Key support comes in at $585 while key resistance is at $608 and $618.

Silver: Silver is expected to find weakness based on yesterday's negative action and approximate test of the $12.90 resistance level.

Trades: None

Upcoming Events

Wed - UK Employment

Ongoing - Peruvian Election Results

Perspective/Recap

Gold opened about a buck higher yesterday, mostly on follow-through from Monday's $9+ rally. Crude oil traded around 55c/bbl higher and lent support as did the Euro, which traded around +0.15 near the gold open despite a bearish German ZEW survey. A Merrill upgrade of Freeport McMoRan helped give support to metals as well. Finally, calls for $14 & $15 silver by metals analysts buoyed the silver market. Silver opened 11c/oz higher.

Metals showed slight weakness throughout the day, despite a liquidation in the stock market and negative developments in Iran. The S&P's took out key support from the Jan 11th high at 1301.00, after consolidating above that level for the past month. Iran formally announced that it has started enriching uranium, although there have been warnings of such for the past couple months.

News Stories

German ZEW Survey was 62.7 vs. 65.0 expected and vs. 63.4 previously.

Freeport McMoRan was upgraded to buy at Merrill Lynch.

European Goldfield's price target was raised at RBC.

UBS raised its 1-month silver target 33% to $14.

Other Analysts in recent days have called for $15 silver and a selloff following the final approval of the ETF.

Analysis

Merrill Lynch Fund Manager Survey

Merrill Lynch's April fund manager survey showed that managers are still complacent over risk factors in the economy. Managers still expect global growth to continue despite the risks of high Fed Funds rates, high oil prices, and recent strength in precious metals. A net 26% see monetary policy as stimulative and most still expect inflation to continue, which may be positive for metals. The survey also found that 58% of mgrs thought the yen was undervalued and 27% plan to overweight Japanese stocks.

Metals Market's Downside Risks

I've been in this job for a little over a month now and silver has rallied $2.40. Gold has rallied around $40. Both markets have exhibited little in the way of a correction and silver has traded lower in maybe only 2 or 3 of those days. They've given the appearance that technicals don't work well in these markets. But of course, never say never.

Silver has been leading the advance of the precious metals markets based on the upcoming Barclays ETF. In the financial markets, news of that kind would cause the market to rally one or two days at most, and then it would be considered ‘priced in.' Iran has also been responsible for a smaller part of the rally. These events have caused silver to generally remain in overbought territory over the past couple months.

While the overbought condition hasn't signaled much for trade, the rising channel pattern and open interest may provide some indication. Trade on Mar 29th broke out above a rising channel pattern drawn off the Dec 12th high and the Dec 21st & Feb 15th lows. In the past, similar breakouts have given an indication that markets were using the last of their gas to accelerate gains. Like a car running on more volatile fumes, the gas tank is nearly empty.

The second indication is the open interest and commitment of traders data. The open interest was reported at 145,779, which was down 3,405 from Friday. Considering that Monday's trade rallied 49c, it may have been an indication of short-covering; something that typically takes place at the end of big moves. Friday's reading in open interest was around 9,000 below the recent peak made in Nov '05 at 158,152. The Nov '05 peak was the highest reading we have on record, with our data going back to only 1996. It therefore appears that the majority of the market is caught on the long-side. Since fund longs are skewed near the upper end of the recent range, it shows that there aren't many potential new longs left.

The commitment of traders data show fund longs at 51,800, down from a recent peak of 66,700. Before that, a peak was made in Dec '04 at 70,100, which is also the highest in our data set, which goes back to 1985.

Geopolitical Tensions/Developments

Iran: Iran said it successfully enriched uranium for the first time, using 164 centrifuges. The statement was made by ex-president Rafsanjani who also said that enrichment has been underway since February. He said that the country has enriched low-grade uranium so far, which is used for nuclear fuel. High grade uranium is needed for bomb making. He said it would take dozens of 164 unit groupings to make enough enriched uranium to create a bomb.

On Monday, the New Yorker ran a story that the Bush administration was considering using tactical nuclear weapons against Iran's nuclear sites. Officials denied that nuclear weapons were part of the plan, but they didn't deny that there was a plan.

Technicals

Gold: Gold ended $2.40/oz lower yesterday. There is disappointment in the fact that the market has closed above $600 in only one day out of the past four. Yesterday's trade also created a bearish spinning top reversal pattern and a peak at $605.60. Key resistance was $608.00. Yesterday's trade formed a bearish divergence when compared to the high on Mar 30th. We look for silver to continue to lead the precious metals markets and currently, there is a high downside risk. The Mar 29th breakout above a rising channel in silver is a classic sign of exhaustion which could project a selloff down to $10.00-$10.50. Gold could move down to $576.00 over that time.

Silver: Silver ended 4c/oz higher yesterday. The market initially rallied on higher oil prices and follow-through from Monday's sharp rally. Pressure, however was seen later on a 'sell-the-fact' trade after the news of Iranian uranium enrichment and from the test of the Aug 23rd '83 long-term high at $12.90. The selloff created a bearish spinning top reversal pattern and will offer resistance at $12.84. Additional negatives come from the large fund long position in the COT and from the Mar 29th breakout above the rising channel pattern. The channel breakout is a classic sign of exhaustion. We wouldn't be surprised to see the market correct lower over the near-term, but the exact timing of a top is difficult to predict.

Disclaimer:

Trading commodity futures and options involves substantial risk of loss. The recommendations contained in this letter is of opinion only and does not guarantee any profits. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results. This is not a solicitation of any order to buy or sell, but a current futures market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!

Economic Reports and Expiration Notices

Source: Moore Research Center, Inc.

* Please note that the information contained in this letter is intended for clients, prospective clients, and audiences who have a basic understanding, familiarity, and interest in the futures markets.

** The material contained in this letter is of opinion only and does not guarantee any profits. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results.

*** This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!