By Nell Sloane

With equity markets in Asia and Europe generally weaker this morning,  U.S. equities are trading moderately lower during the early Friday trade. The Dollar was mixed against the major currencies during overnight trading, with a modest gain against the Euro while losing ground to the Yen. The Chinese chief currency regulator stated that China had overtaken Japan to become the second largest economy in the world. Members of the ruling party in Japan have proposed that the Bank of Japan set inflation targets, weaken the Yen, and be responsible for full employment for that nation. Japanese unemployment during June was 5.3%, higher than forecast. Japanese CPI during June was down 1.0% year-on-year, in line with expectations but the sixteenth consecutive month that number has declined. Japanese Industrial Production during June was down 1.5%, much weaker than forecast and the largest monthly decline in more than a year. The Euro Zone Unemployment rate during June was 10.0%, unchanged and in line with expectations. German Retail Sales during June were down 0.9%, lower than estimates. A busy day for major US economic numbers will include the first estimates for second quarter GDP and the Employment Cost Index at 7:30 AM, a private survey of Purchasing Managers in the Chicago area around 8:45 AM, and a private survey of Consumer Sentiment at 9:00 AM.

GOLD MARKET FUNDAMENTALS:

More physical buying was seen in Asia overnight, as jewelers appeared anxious to secure bullion ahead of the 2nd Quarter GDP report this morning. General expectations are calling for around 2.5% annual growth in the 2nd Quarter, a modest decline from 2.7% in the 1st Quarter. Coming up short of that could ramp up trader anxiety and risk aversion and send buyers back into gold and out of other riskier assets, while a better than expected number could do the opposite. The "safe haven" attraction of gold has been diminishing since mid-June and was especially hit late last week and into this week on mostly positive US corporate earnings reports and a better than expected Euro bank performance, but some caution has reemerged with some of the employment and consumer sentiment data this week and lent some support to gold. Through it all, physical buying has been fairly robust, as jewelers across Asia were apparently taking advantage of the price break to replenish supplies. This provides some support to the market and may limit the declines if the US economic data comes in as expected or even better than expected. With the US and European economies still facing a host of problems that will not be fixed for a long while (sovereign debt, personal debt, an anemic housing market) there are still likely to be crises emerging from time to time that make investors skittish and return to gold. In addition to that, physical market activity on the recent break suggests strong underlying end-user demand. From this perspective, the recent correction may be a good opportunity to buy gold. Wednesday's break in October gold was done on record volume and resulted in a steep decline in open interest. This, coupled with the fact that October gold fell to just below the 50% retracement of the February-June rally suggests the move could have been the culmination of a 5-week correction in a longer term bull market. A stronger than expected GDP number this morning could present a buying opportunity, while a weak GDP number could set the market running higher. Gold's performance off of the release of the number could be telling, because a quick recovery off of a strong GDP could further support ideas that the market has bottomed. Look for support in October gold at 1157.50 and 1149.60, with resistance at 1177 and 1188.

SILVER MARKET FUNDAMENTALS:

Silver is trading moderately higher this morning despite weaker equity prices, as it appears to be taking its cues more from gold than from the stock market and other industrial commodities this week. The metals markets are likely to look to today's GDP reading for direction, with a strong number likely bearish to precious metals (including silver) while a weaker than expected number probably bullish. However, given silver's dual role as both a precious and an industrial metal, its reaction to the GDP release could be more muted than gold's. Silver may also be garnering some residual strength from the strong physical demand for gold seen out of Asia this week. A weaker than expected GDP number could lend support to silver today, as it could boost flight to quality buying in the precious metals, although the reaction is likely to be muted by concerns over industrial demand aspects. Likewise, a strong GDP could have a moderately negative effect on silver. Like gold, silver has recently held at the 50% retracement of the February-June rally, but unlike gold this is its second time back to those levels. Furthermore, this did not occur on high volume/high liquidation day as gold did, so the action does not appear to be as much of a culmination. For now, the market appears to be hovering at the bottom end of a consolidation range, with support at 17.32 and 17.23, with resistance at 17.74 and 18.06.

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 (AUG) 07/30/2010: Momentum studies are declining, but have fallen to oversold levels. A negative signal for trend short-term was given on a close under the 9-bar moving average. With the close over the 1st swing resistance number, the market is in a moderately positive position. The next downside objective is now at 1155.8. The next area of resistance is around 1173.8 and 1176.7, while 1st support hits today at 1163.4 and below there at 1155.8.

COMEX SILVER (SEP) 07/30/2010: Momentum studies are dec lining, but have fallen to oversold levels. A negative signal for trend short-term was given on a close under the 9-bar moving average. The close over the pivot swing is a somewhat positive setup. The next downside target is 1739.2. The next area of resistance is around 1773.2 and 1782.1, while 1st support hits today at 1751.8 and below there at 1739.2.