FSJG Index™ Review
Year End Perspective
by Frank Barbera
January 8, 2007

General Comments

As is the case with the start of each New Year, there is always the tendency to look back and see what trends, if any, crystallized during the year just past. To that end, we recently put in some additional time, and a rather considerable effort, to broaden out the Financial Sense Junior Gold Mining Index (FSJG). I first alluded to this discussion in December.

Over the last two months, the Index was broadened from 25 stocks to 40 stocks, with price levels being maintained at essentially comparable levels for all four indices. In addition, we also worked up a host of what will hopefully be well received as “really cool charts,” which we look forward to sharing with you on an even more regular weekly basis over the year ahead.

To this end, we really wanted to capture the essence of what has been a clearly broadening bull market trend for small cap mining issues. This trend has been impossible to ignore and actually is now clearly visible in the chart below. What you see in this graph is prima-facia evidence of a bull market morphing before our very eyes.

On the last day of December 2005, the XAU ended the year at a reading of 128.04. On December 29, 2006, the XAU finished 2006 at a reading of 142.26 ending 2006 with a gain of 11.10%. Respectable enough, but nothing like the 28.81% gain seen in the XAU in 2005. So, we see back-to-back positive years in the Senior Gold Miners.

But what about the Smaller Cap Golds? How have they performed? Well, as can be seen in the chart below, the Smaller Cap Mining Companies have literally runaway with the field, leaving their larger-cap brethren in the proverbial dust.

Financial Sense Junior Gold Index (FSJG)

FSJG I

In the chart above, I have “rebased” the XAU and the Financial Sense Junior Gold Mining Index to a common starting value of 100. Since the start data on 1/09/2002, the XAU is up from 58.07 to a present value of 133.04, a nice gain of 129.10%. Yet, over the same period of time, investments in Junior Mining companies as measured by the 40 stocks in the Financial Sense Junior Mining Index, have exploded by 1071.53%. It has moved from a starting value of 25.99 to a current value of 268.54 – darn impressive to be sure! Looking at the previous chart, the XAU is getting harder and harder to find.

What about last year? How did the Junior Mines do versus the XAU in 2006? Well, in the aggregate, the FS Junior Mining Index gained 45.19% from a reading of 198.24 to a closing value of 287.83, a gain of 89.59 index points for the year.

Within the Sub-Indices, the Junior Producer Index ended at 321.29, up from the 12/05 close of 227.59, for a gain of 41.17% or 93.70 index points. Among the three sub-indices, the laggard was the Junior Development Index, which ended at 681.66, up just 7.34% from its 12/2005 close of 635.00. The unequivocal “STAR” of the year as the Junior Exploration Index, which gained 118.53% with the Index moving from 71.66 at year-end 12/2005 to a 12/06 close of 156.66 – Incredible!

As we can see, the composite FSJG Mining Index ended the year on a very robust note vis-a-vis the XAU, with the Relative Strength Ratio of Small Caps to Large Caps moving sharply higher into year end.

Thus, a trend of clear-cut ‘out-performance’ has been, and remains, in place in the Junior segment of the gold market. In my view, this reflects a leadership-change taking place within the Gold and Silver Mining sector, placing a great emphasis on the ability to find new deposits. At the moment, this trend is fairly well established and appears to be a theme that could well accelerate even further in 2007, provided that the price of Gold continues to remain firm.

Looking back at last week's action, we find the Financial Sense Junior Mining Index ended the week at 268.54, down 19.29 index points or 6.71% from the 12/29 close of 287.83. The week of 12/22, the index closed at 275.99. On Friday, the 50-day average ended at 267.43 with the 200-day average at 243.85.

For the Junior Producers, the first week of the New Year started with a decline of 6.79% or 21.82 index points with the index closing at 299.47 down from 321.29 on 12/29. On 12/22, the index closed at 310.30. With Friday’s close of 299.47, the Junior Producer Index ended above the 50-day average at 298.73 and above the 200-day average at 271.36.

Development stocks also started the New Year on a down note, with the FSJG Development Index ending at 647.24, down from 681.66 on 12/29. For Development stocks, the 12/22 close was 662.09. Friday’s close of 647.24 saw the index end below its 50-day average at 668.08 and even below the 200-day average at 660.80.

Finally, last year’s star performers, the Exploration stocks, also began the New Year in “give-back” mode with the FSJG Exploration Index ending at 143.90, down 8.14% from last week's close of 156.60. For the Exploration Index, the 1/520/07 close of 143.90 left the index still above the 50-day average at 138.31 and the 200-day average at 115.91.

(Charts Follow)

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.