Financial Sense Junior Gold Mining Index Review by Frank Barbera 01/28/2008

General Comments

-- Pass me the Mylanta, what a stomach churning week. It was a week that started with a massive sell off in overseas markets which we later came to realize, may have been sparked in some part by the actions of a rogue trader at Society Generale who lost over 7 billion dollars. With the Dow opening down nearly 500 points on Monday, and all the other averages following suit, it had all the ingredients of a week most of us would rather forget. Yet in its dire and inauspicious beginnings lay the groundwork for an important recovery, as the Federal Reserve lowered interest rates and an extreme oversold technical condition paved the way for a rather striking comeback in the latter half of the week. At one point, the DJIA was down 465 points or 3.80%, the S&P was down 55 points or 4.15% and the NASDAQ was down 139 points or 5.97%. The losses were largely erased by weeks end, with the DJIA closing higher on the week by 108 points, a gain of .90%, the S&P 500 closing higher by 5.43 index points and the NASDAQ cutting its loss to just 13.54 index points, or less then 1%. The whiff of an aggressive Fed rate cutting cycle sent precious metals soaring with Gold gaining 31.20/oz to close at $913.50, up 3.50%m and Silver gaining 1.98% or $.32 per ounce to close at $16.44. Platinum was unbelievable, moving virtually straight up on the week on news of a strike in South Africa, the price soaring $115/oz or 7.40% to close at $1,669 ounce, up from $1,554 the prior week.

For the Large cap mining stocks, what started out as formidable losses evolved into a healthy gain for the week. On the week, the Philly Gold and Silver Index, the XAU, ended higher by 4.64% to close at 185.54, up from 177.30 for a gain of 8.24 index points. At the same time, the equally watched HUI, Amex Gold Bugs Index ended with a gain of 25.08 index points, or 5.74% confirming the strength in the XAU. Thus, it was a good week for bullion and large cap miners. Unfortunately, smaller cap stocks normally lag behind the large caps at important turns, and that was the case this week. On the week, the FSO Junior Mining Index of 40 small cap miners, ended slightly lower with a loss of .26 points, finishing the week at a reading of 265.20, down from the previous weeks close of 265.46. On Friday, the 50 day average ended at 275.78, with the 200 day average at 288.00, leaving the index below both important moving averages.

Financial Sense Junior Gold Index™

Mining Index

Above: the FSO Junior Mining Index - 40 stocks

Financial Sense Junior Gold Index™

Producer Index

Above: FSO Junior Producer Index

Among the sub-indices, the FSO Junior Producer Index ended at 271.62, up slightly from 269.27 and managed to end the week with a gain of 2.35 index points. For the Junior Producers, the 50 day average ended at 284.26, with the 200 day average at 296.61. Development Stocks ended with a gain of 14.42 index points to close at 494.63, ending with a healthy gain of 3.10% in one of its best relative strength showings in some time. On Friday, the 50 day average ended at 471.73 with the 200 day average at 534.23. Finally, Exploration issues ended lower, with the FSO Exploration Index ending down 4.18 index points to finish at a reading of 180.46, down from 184.64 the prior week. For the Exploration Index, the 50 day average ended at 194.88, with the 200 day average at 195.98.

Financial Sense Junior Gold Index™

Development Companies

Above: FSO Junior Development Index

Financial Sense Junior Gold Index™

Exploration Companies

Above: The FSO Junior Exploration Index

Financial Sense Junior Gold Index™

FSO vs. XAU Relative Strength Ratio

Above: the Relative Strength Ratio of Juniors to Seniors.

On a relative strength basis, Juniors Gold’s remain in a solid downtrend which now dates back to a peak last March 15th. Certainly, a mature and extended period of relative under-performance, there is quite a mystery as to why these stocks are not moving up aggressively in light of record, multi-year highs for all metals. While no one explanation is readily apparent, perhaps the only explanation may be that of diminished risk appetite as the broader trend for stocks has entered a bear phase and financial institutions are pairing back risk rather then becoming more aggressive. With so many of these companies engaged in rigorous drilling programs, --- programs that enhance shareholder and property value, the inherent ‘value’ proposition illustrated in most quality juniors seems to be getting better and better with each passing month. Who knows, perhaps these are the key ingredients for a mania style bull market once more broad based confidence returns to the global markets.

Financial Sense Junior Gold Index™

Relative Strength Juniors versus Seniors

Above: Relative Strength Juniors versus Seniors

Financial Sense Junior Gold Index™

FSJG Index and the XAU Index

Above: the FSO Junior Gold Index and the XAU Index (rebased) over the last few years.

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.