FSJG Index™ Review
by Frank Barbera
February 12, 2007

General Comments

It was a good week for Gold, which ended higher by $18.30 or 2.80% to close at $671.40, up from $653.10. For the Midas Metal, the 2.80% advance extended a four-week winning streak and left prices at the highest levels seen since mid-August 2006; a six-month high. With Gold pressing higher, Silver advanced, but on a relative performance basis has lagged behind Gold over the last few months. On the week, Silver edged higher by 3.73% to end at $13.90, up .50 from the prior week's close of $13.40. Considering Silver’s relatively higher beta, the performance of late has been acceptable, but not yet at ‘stand out ‘ levels.

Nevertheless, with the metals gaining ground, the mining stocks extended their gains with the XAU adding 2.00% on the week, and notching its 3rd weekly gain. For the XAU, Friday’s close ended at 141.66, up from the prior week's close of 138.88. That said, the mining stocks have been lagging gold in fairly dismal fashion over the last few weeks, as perhaps concerns related to higher production costs – possibly forthcoming in upcoming earnings reports, have led buyers to keep the proverbial wallets placed firmly in their hips. Since the low in Gold on January 8^th at $608, the yellow metal has gained $63.40 or +10.42%, while the XAU – Large Cap Gold Index has gained a mere +8.78 index points or just 6.60%.

Financial Sense Junior Gold Index [FSJG]

For a sector that is normally leading gold, and outperforming on the upside, the tepid nature of the recent rally in Gold stocks at least begs for closer scrutiny going forward. For now, the large cap mining stocks appear to be attempting to catch up and that paints the very recent action in a more encouraging light. Of course, Junior Mining companies have done very well, as documented in these pages in recent weeks, with the Financial Sense Junior Gold Mining Index [FSJG] up a hefty 11.37% from its equivalent January 8^th low. Yet, that one figure still does not really tell the entire story. Within the three sub-indices, it has been the Exploration stocks that have consistently led the market higher in recent weeks. Since the January 8^th low in Gold, the Junior Producers are up 11.06%, slightly ahead of the XAU, with the Development stocks lagging badly up just 3.92%, and the Exploration stocks up 18.49%. Quite the marked difference in performance among these various sectors.

For the week, the FSJG Mining Index ended with a gain of +6.49 index points to close at 299.60, up from 293.11 last Friday, a gain of 2.21%. The 50-day average for the FSJG Mining Index closed at 281.37, with the 200-day average at 247.23. Among the Junior Producers, last week saw the index advance by +6.87 index points to close at 333.08, up from 326.21 for a gain of 2.10%. For the Junior Producers, the 50-day average closed at 316.26 with the 200-day average at 275.11.

Among the lackluster Junior Development stocks, prices managed a small gain ending at 675.11, up 1.24 index points, from last week's close of 673.87. For the Development Index, the 50-day average ended at 673.88, with the 200-day average at 649.19. In the author’s view, Development stocks appear to be lagging a bit at this juncture as many of the companies represented in the index are in a relatively quiet phase, in construction et all… where there are fewer drilling results flowing. In the current market, emphasis appears to be on delineating new resources and thus most of the action is found at the tip of the drill bit.

In that vein, the Junior Exploration stocks sprinted higher once again, ending at 170.55, up +6.58 index points from last week's close of 163.97, a gain of 4.01%. The 50-day average ended at 150.75, with the 200-day average at 121.77.

In the next chart, we look at the Financial Sense Junior Gold Mining Index relative to the XAU. As can clearly be seen, the FSJG Index has been strongly outperforming its larger cousins, which is a very encouraging signal about the health of the metals bull market. Traditionally, as bull markets extend their cycle, an advance will need to broaden out, away from the initial “go to” stocks and to lesser-known names. With the Anglogolds, Barricks, and Newmonts of the world somewhat idle (performance wise) in recent months, the fact that money is still flowing into the sector and looking closely at smaller cap names is a major signal that there is great deal of capital on the hunt for high quality mining projects. Technically, the action in Small Cap Miners also looks healthy with the McClellan Summation Index based on the 40 stocks in the FSO Mining Index moving higher and residing above its signal line.

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.