FSJG Index™ Review
by Frank Barbera
June 11, 2007

General Comments

It was a horrible week in the metals markets, with nearby Gold tumbling $25.70 an ounce for a loss of 3.82%, completing unwinding the previous week's gain of $16.10 or 2.45%. On the week, spot Gold fell from $671.20 to a Friday close of $645.50, recording a new multi-week low and ending at the lowest reading since March 15^th. At the same time, nearby Platinum slid by $8.00 ounce to a close of 1279.05, with nearby Silver ending down $.57/oz to close at $13.09, down from $13.66, a loss of 4.17%. The carnage in the metals in turn wreaked havoc in the share prices for mining companies with the widely-watched Philly Gold and Silver Index, the XAU, tumbling 7.64 index points or a whopping 4.94%. The XAU is now down 4 of the last 5 weeks. The Amex Gold Bugs Index, the HUI, also fell ending down 16.70 index points or 4.87%, to finish at a reading of 326.14.

Financial Sense Junior Gold Mining Index Comments

Worst still, the outlook going forward is not promising, as the week's downside reversal inflicted still more technical damage, heaped upon a building list noted in our prior report. Under the header of Strike One, we would point out the large Double Top failure that occurred on the Financial Sense Junior Gold Mining Index (FSJG) with a ‘left side’ peak on February 26, 2007 at 333.18, and a ‘right side’ peak of 331.44 on April 16^th. Those double top highs were accompanied by a pronounced failure on the intermediate term MACD, with prices slipping below the 50-day average in earnest back on May 10^th. Strike Two was the breakdown from the Double Top the week of May 25^th which was followed by an anemic snap-back recovery rally to the underside of the Double Top “floor level” at 295.00. Strike Three now looms dead ahead, with prices for the FSJG Mining Index ending this week at 280.93, with the 200-day moving average ending at 278.28. A move next week below the 200-day moving average would complete an emerging bearish technical picture for Small Cap Gold Stocks and would likely imply down to at least the mid-250.00 zone on the index, an area which also lines up with the minimum measured move from the Double Top.

Obviously, we will be keeping a close eye on the trend in the days and weeks ahead, but we also note the 50-day average for the FSJG Index, which over the last two weeks has slowly begun to decline.

Turning to the weekly numbers, nearby Gold ended lower at a reading of $655.20, down $6.90 on the week, or 1.04% from last week's close of $662.10. For the FSJG Mining Index (shown above), the week produced another big loss, with the index down 4.55% to finish at 286.28, down 13.67 index points from the prior week's close of 299.95. The 200-day average is the next support and that ended the week at 275.58, while the 50-day average is now fairly strong resistance at 312.41.

Taking another look at the FSJG Mining Index, we note that the prior ‘distinct’ high was seen back on May 10, 2006 at a reading of 273.11. That high was then followed by a very nasty three-week decline.

In the chart above, we have drawn in a horizontal support line extended forward off the May 10, 2006 peak. That horizontal line now dovetails with the rising 200-day moving average at 278.28. In addition, the rising trendline drawn in across the major lows of October 20, 2005 at 135.64, June 13, 2006 at 190.46, and October 11, 2006 at 215.64 comes in next week between 273.11, and 276.50. Put another way, a decline of an additional 3% from this week's close of 280.93, would downside the index below 273.00, and in the process would downside penetrate all three legs of the current support band, namely, the former highs of May 2006 at 273.11, the rising trendline and the 200-day moving average.

Were that to occur it would be distinctly bearish and could argue that an even larger medium-term decline back down to the 225 zone, -- a full 50% retracement (see chart above) of the entire rally could be seen. While this may sound very negative, and to be sure is not pleasant, it most certainly does not mean that the bull market is ‘over’ for either Gold or Gold Stocks. What longer-term investors need to understand is that in this sector volatility is implicitly very high. While these types of percentage declines might be a dead giveaway for a bear market in other sectors, or most certainly for the general market where Gold is concerned, it is just the signature of a large degree bull market correction.

In Elliott Wave terms, the Gold bull market appears to be entering a large degree Wave Two pull back, which could last for several months. Thereafter, we fully expect Gold prices and Gold Stock prices to turn 180 degree about and begin moving back to new multi-year highs. So there is not only a silver lining, but a golden lining in all of this for long-term investors, who should either take this opportunity to raise some cash or hunker down for a more difficult period of time.

Below we show the weekly closes for each of the FSJG Indices going back over the last three weeks. In addition, we can report that during the week just past, the FSO Junior Producer Index fell 15.60 index points or 4.98%, the FSO Junior Development Index fell 7.56%, a decline of 47.56 index points – one of the largest on record, while the Junior Exploration Index fell .7% or 1.38 index points. At week’s end all three sub-indices ended below their 50-day moving averages, which for the Junior Producers ended at 331.05, for the Junior Development stocks at 673.79, and for the Junior Exploration stocks at 183.39. 200 day averages were 305.14, 662.82 and 152.62 respectively.

Prior Weekly Closes for FSJG Mining Indices:

That’s all for now,

Frank

*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.