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It was an explosive week in the Precious Metals markets as concerns over the situation with Iran and the United Nations Security Council kept a bid below Oil prices and, not surprisingly, below Precious Metals prices. On the week, Gold vaulted to a fresh round of 25-year highs, closing on the new June contract at $586.70. Gold was up $21.70 from last week's close of $565.00 for a gain of 3.84%. Gold stocks feasted greedily on the nearly 4% rise in bullion, with the HUI surging 7.82% to a close of 331.22. The HUI Index moved briefly above the 340-zone on Thursday. For the XAU, the week's action yielded a gain of 8.29 index points or 6.21% with the Philly Gold and Silver Index finishing at 141.65, up from last week's rise to 133.36. Financial Sense Junior Gold Index Yet, as has been the case in the last few weeks, the real superstars of the precious metals arena were the Juniors with the small cap golds tacking on another 18.61 index points on the Financial Sense Junior Gold Index (FSJG), which closed at 284.54. On the week, the FSJG Index gained 6.99%, up from last week's close of 265.93. On Friday, the 50-day average for the FSJG Index ended at 586.70, with the 200-day average at 565.00. Financial
Sense Junior Gold Index™
Up 7 of the last 8 weeks, the Financial Sense Junior Gold Index is now up an amazing 94.11% since hitting a low of 146.58 on October 20, 2005. That’s nearly a 100% gain in 5 months! Turning to the FSJG Sub-Indices, the Junior Producer Index ended the week at 295.81, up 25.12 index points or 9.30% from last week's close of 270.64. On Friday, the 50-day average for the FS Junior Producers Index ended at 257.19 with the 200-day average at 200.36. As can be seen on the next chart, with both the FSJG Index and the Junior Producer Index nearly 50% above the 200-day average, prices are, at the very least, extended at the current time. Producer Companies
Comparison
Comparison
While this does not mean that these averages cannot move even higher—as indeed was seen in recent years in late 2003—it does mean that any nascent downside reversal developing from current levels should be treated with great respect, as declines beginning from overextended territory can be sizeable. In my work, I also keep a longer-term index of Small to more Medium-Size Gold stocks, which dates back to 1970. This index, due to its construction methodology, is less prone to large swings above and below the 200-day moving average. By contrast, the FSJG Index, which is a newer index, does an excellent job capturing the various segments of the truly small cap Gold Market and, by design, is aimed at reflecting a broader universe of highly-volatile, small cap golds. The point here is that even on my other more Intermediate-type Gold Index, current readings with respect to the 200-day average are by any historical standard, overextended. While a cautionary note, it does not necessarily imply that a top has been seen. It certainly does provide a strong caution with regard to any new money purchases at these levels, which would probably be taking on very high levels of risk….caveat emptor. Bottom Line: the only message, which should be concluded with these charts, is that once prices do begin to show some early-stage slippage—in most instances—a sizeable, multi-week reaction will follow. Using my long-term index, readings 20% above the 200-day MA have been extreme, while readings 15% below the 200-day MA have presented world call buying opportunities. Going forward, within the context of an ongoing bull market, a pull back to neutral levels near zero would likely be an excellent buying opportunity—if and when that occurs. I include this second chart only for some additional longer term perspective. Long-Term,
Small Cap Golds
Finally, we will end this week with our usual recap of Junior Development and Junior Exploration stocks. Getting back to the FSO Indices, I note that the FS Junior Development Index ended at 780.69, up from 744.61 last week for a gain of 36.08 index points or 4.84%. Development Companies 
At the same time, the FS Junior Exploration Index ended at 145.11, up from 136.58 for a gain of 6.24%. For the Development stocks, the 50-day average ended at 702.62, with the 200-day average at 522.67.Exploration Stocks saw the 50-day average end the quarter at 120.40, with the 200 day average at 80.80. Exploration Companies 
Looking at these two sub-index charts—once again—we note that the Junior Development Index has now advanced by 88% from its October 2005 low, while the Exploration Index—which appears to have been “shot out of a cannon” these past few weeks—is now up 132% from its October 2005 low. WOW! ©
2006 Frank Barbera. All rights reserved. *Please note that the individual companies in this index are proprietary and will not be disclosed due to compliance and regulatory issues resulting from the relationship of FinancialSense.com, Puplava Financial Services, Inc., Registered Investment Advisor and Puplava Securities, Inc. Member Firm FINRA/SIPC. |
