FSJG Index™ Review
by Frank Barbera
November 17, 2006

General Comments

After three weeks of higher prices, Gold weakened during the week just past to end with a loss of $7.40 or 1.17% at a closing price of $622.70. Weaker housing data and a big decline in the inflation data appeared to knock metals prices lower across the spectrum over the last few days. In addition, lower Oil prices also placed pressure on the resource sector with Gold trading in sympathy with Oil in recent months.

To illustrate how tight the correlation the trade has been between Gold Mining Stocks and Oil Drillers, I include the chart below, which shows the XAU (Philly Gold Index) overlaid against the OSX (Philly Oil Service Index). Over the balance of 2006, the two indices have traded in ultra-close patterns, in fact, almost a precise overlay of one another.

Philadelphia Oil Service Index (OSX) / XAU Index

Over the last few weeks, Gold has shown a great of relative strength versus Oil, but has also tended to be notably weak on days when Crude prices were sharply lower. In the case of nearby Crude Oil, the sharp decline seen in Thursday’s session unfolded against the backdrop of a contract roll-over and expiration, with the spread between December Crude and January Crude at a whopping value of $2.80.

With very little news in the backdrop to account for a sharp decline in the nearby Oil price, odds are high that fund trading and positioning, unwinding of contracts, had more to do with the decline than anything else. In addition, the decline in Crude Oil to new lows was not confirmed by equivalent declines to new lows in either Unleaded Gasoline, Heating Oil or Natural Gas, and that is the type of positive divergence which will often attend a more important low.

On the weekly chart, Crude Oil remains heavily oversold with the 9-week RSI below 30, while at the same time, even with Thursday’s sell off, Crude prices are still holding above support at the 50-week and 50-day lower Bollinger Bands. Next week, watch $60 on January Crude Oil as any move back above $60 would be potentially very bullish.

December Crude Oil

Financial Sense Junior Gold Index

Nevertheless, with Oil and Gold both weak, natural resource stocks were mugged once again, with the XAU falling 5.87 index points to end the week at 133.08, down 4.22% from last week's close of 138.95. At the same time, the HUI Amex Gold Bugs Index fell 13.63 index points to close at 318.46, down 4.10% from last week's close of 332.09. The collective sell off in high cap miners, rippled through to secondary Gold stocks with the Financial Sense Junior Gold Mining Index (FSJG) ending down 11.63 index points to close at 259.18, down 4.29% from last week's close of 270.81. On Friday, the FSJG Mining Index ended above the 50-day average at 244.31 and above the 200-day average at 252.15 (see below)

Elsewhere, the Junior Producer Index tumbled a hefty 4.35% to end at 283.48, down 12.92 index points from last week's close of 296.40. Like the FSJG Mining Index, the Junior Producers ended above the 50-day average at 264.33, and above the 200-day average at 272.93.

Among other Sub-indices, the FSJG Development Index ended the week at 638.53, down 44.91 index points or 6.57% from the previous week's close of 683.44. For the FSJG Development Index, this week's decline was the worst decline since the 9.92% drubbing seen the week ended October 15^th.

At the close on Friday, the Development Index ended below the 200-day average at 571.45, but still managed to close above the 50-day average at 623.28.

This weeks ‘gold star’ for performance goes to the Exploration stocks where prices barely lost any ground. On Friday, the FSJG Exploration Index ended down 2.35 index points at a close of 138.20, down 1.67% from last week's close of 140.55. The close of 138.20 left the Exploration Index above the 50-day average at 127.56, and above the 200-day average at 125.13.

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.