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General Comments Gold and Gold Stocks edged lower for the third week in a row, leaving the sector depressed and oversold. At the same time, the last three weeks of downward price behavior has begun to extract a negative toll on the technical outlook for the sector. We can see this action with the Financial Sense Junior Gold Mining Index (FSJG), which last week just barely slipped below the lows of the prior two weeks. Disconcerting action to be sure, but this action alone does not preclude a rebound over the relatively near term. That said, very often this type of behavior is a precursor to larger trouble ahead as the small cap mining sector has been the ‘bright spot’ within the metals group over the last few months and trouble in this area is a big red flag. Financial Sense Junior Gold Mining Index Comments At the present time, odds of a double top in the FSJG Index are growing and would be confirmed by (1) a failing rally over the next few weeks and (2) a subsequent break down below this week’s lows. 50-day & 200-day Moving Averages
Obviously, we will be keeping a close eye on the trend in the days and weeks ahead, but we also note the 50-day average for the FSJG Index which over the last two weeks has slowly begun to decline. Turning to the weekly numbers, nearby Gold ended lower at a reading of $655.20, down $6.90 on the week, or 1.04% from last week's close of $662.10. For the FSJG Mining Index (shown above), the week produced another big loss, with the index down 4.55% to finish at 286.28, down 13.67 index points from the prior week's close of 299.95. The 200-day average is the next support and that ended the week at 275.58, while the 50-day average is now fairly strong resistance at 312.41. Producer Companies
A big chunk of the weakness in the FSJG Mining Index over the last few weeks has been the Junior Producer Index, which previously had been performing very well. This week, the index slumped again, tumbling a hefty 5.31% to end at a reading of 303.33, down 17.03 index points from the prior week at 320.36. The loss of 5.31% builds upon last week's loss of 1.96% and a loss of 4.02% the week ended May 11th. Overall, from its recent peak on April 17th at 363.12, the FS Junior Producer Index is now down 16.40% in just 27 trading days. As can be seen on the chart above, the index is now well below the 50-day average at 336.41, and resting on support at the 200-day average at 302.83. As can be seen in the chart below, the index is quite oversold on a short- to medium-term basis, with the 14-day RSI ending the week below +30 at a reading near +29. Producer Index with the 14-Day RSI (now deeply oversold) 
Medium Term A/D Ratio Above: the FSJG Mining Index with the McClellan Summation Index, now closing in on medium-term oversold territory near zero. Often the Summation Index will continue to decline for several days, even after prices begin to advance off a short-term low. In addition to the 14-day RSI, we would also note that on a more medium-term basis, the McClellan Summation Index is working its way down to medium-term oversold territory, with readings now approaching zero. Ordinarily, readings below zero on this gauge can really highlight major buying opportunities. However, in the present instance, with the US Equity Market now beginning to build what could be a very major top, along with same possibility in Chinese stocks, an extra dose of caution is warranted as recent episodes of de-leveraging have adversely affected all asset classes. I made this point in my article last Tuesday entitled “Tales of a Rolling Boulder” (see FS WrapUp archives) by comparing the Dow Jones Spot Commodity Index and the S&P 500. Nevertheless, the depressed state of Gold Stocks would seem to require at least something of a short-term bounce. Development Companies 
Exploration Companies
At the close on Friday, the Junior Development Index ended at 610.53, down from 631.02 for a loss of 20.49 index points on the week or 3.24%. On Friday, the 50-day average for Development Stocks ended at 690.94, while the 200-day average ended at 663.67. Finally, the Junior Exploration stocks ended at 175.45, down 9.24 index points for the week of 5%, with the 50-day average at 184.46, and the 200-day average at 149.40. So far, the Exploration stocks are only down about 8.8% from their recent highs, while the Development Stocks are down 19.56%. That’s all for now, Frank Financial Sense Junior Gold Index Archive *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. |
