FSJG Index™ Weekly Review
by Frank Barbera
May 12, 2006

General Comments

It was a volatile week for both Gold and Gold Stocks with Gold soaring to 26 year highs, and indeed on a nominal price basis, rapidly closing in on former all time highs. For the week, physical Gold gained $32.40 to close at $717.00 for a gain of 4.56% versus last weeks close of $684.60. With this weeks strong advance, Gold extended its winning streak to the ninth consecutive weekly advance. Since Gold start trading in 1968, the longest winning streak ever seen was 12 consecutive weeks between October 26^th, 1979 and January 18^th, 1980. To date, the current streak would rank as Gold second longest winning streak ever seen.

COMEX Gold  - Consecutive Weekly Gains
(1975 - Present)

Of course with Gold moving to center stage under the investment spotlight, it is also worth noting that metal is presently quite historically overbought. While there are never any guarantees in the investment world, (and especially in today’s investment world where global geo-political conditions like War in Iraq and Tension with Iran dominate) applying historical patterns would normally suggest an extended consolidation and/or correction is fast approaching for the barbarous relic.

COMEX Gold  - Long Term Momentum Oscillator
(1975 - Present)

With Gold currently pressing back up toward the area of the former highs, some of my long term technical gauges on the yellow metal are back into rarified territory, wherein readings this overbought were only seen for a period of a few days back in early 1980.

XAU Versus Gold - Relative Strength Ratio
(October 2004 - Present)

Perhaps the gold stocks, which tend to anticipate (as equities in general are a discounting mechanism) future trends for Gold have already locked onto to the potential of a brewing gold correction as over the last few weeks, gold stocks have badly unperformed Gold bullion. As can be seen in the chart above, the Relative Strength Ratio of Gold Stocks versus Physical Gold has been declining now for several weeks, and has never managed to record new highs above the high set in early February. For the Gold Stocks, this week was a particularly spirited version of Mr. Toads Wild Ride, the old favorite as Disneyland. With the XAU and HUI both up big time on Tuesday, it looked for a time that mining stocks might be starting to play “catch up”. Yet, Wednesday’s slightly hawkish Fed statement – leaving open the question on when rate hikes would end – turned out to have a bearish impact on cyclical stocks of all kinds, including the Gold Stocks. Following a nasty downside reversal day on Thursday, the mining indices dove sharply into Fridays close with the XAU down 6.69 index points or 4.03% to end at 159.40 while the HUI ended lower by 18.67 index points or 4.82% to finish at 368.54. For the week, despite a $32.40 NET price gain for Gold, the leading mining stocks closed sharply LOWER, with the XAU down 2.49 index points or 1.53%, and the HUI down 11.60 index points, or 3.05%.

Financial Sense Junior Gold Index

Not surprisingly, smaller cap stocks were not immune to the sell off, as the FSO Junior Mining Index closed at a reading of 280.78, down 9.17 index points from last weeks close of 289.95, for a loss of 3.16%. At weeks end, the FSO Index ended above the 50 day average at 274.50 and above the 200 day average at 202.89.

Within the FSO Sub-Indices, the Junior Producers Index ended at 304.69, down 9.41 index points from last weeks close of 314.10, with the 50 day average at 290.70 and the 200 day average at 221.72.

In addition to the 3.00% loss in the Junior Producers, both the Development companies and the Exploration stocks ended lower. On Friday, the FSO Junior Development Index ended at 774.27, down 27.12 index points or 3.38% from last weeks close of 801.39, with the 50 day average at 762.13, and the 200 day average at 575.97.

Rounding out the list of Small Cap Junior Indices, we find that the exploration stocks shed ground on the week, ending at 132.67, down 4.32 from last weeks close of 136.99, a loss of 3.15%. On Friday, the 50 day average ended at 133.90 for the Exploration Stocks with the 200 day average at 90.90.

Finally, a number of technical gauges “rolled over” in a convincing manner this week, with the McClellan Summation Index for Small Cap Gold Stocks ending at 991.00, down from 1278 the prior well.

*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.