Financial Sense Junior Gold Mining Index Review by Frank Barbera 06/03/2008

General Comments

The three week winning streak for Precious Metals came to an end this week, with Gold falling 4.14%, Platinum falling 7.26% and Silver falling 7.21%, with the only saving grace, the fact that Friday saw prices reversing higher and closing the week on a less negative note. Still, it was a broad sell off in the metals and in the large cap mines, where the XAU ended lower by 6.66 index points or 3.54%, with the GDX down 3.62% and the HUI down 4.53%. However, while much of the news was negative for mining stocks this past week, there was one bright shining light and that was the performance of Junior Miners.

NEWS FLASH: THE JUNIOR MINING STOCKS DID NOT REACT TO THE DOWNSIDE IN THE WEEK JUST PAST!

That’s right, on the week, the FSO Junior Mining Index of 40 stocks actually gained ground, GAINING .36 index points to close at 234.00, up from 233.64. OK, so we can hear the voices out there saying “Big Deal!” -- it gained a measly .36 index points, ---less then 1% so what, Barbera? Well, in our view, --- perhaps nothing or perhaps everything.

While the gain was certainly nothing to phone home about, the fact that the small cap sector was able to generally resist the sell off in the large caps was in our view quite significant. What’s more, large caps actually held up very well in the face of the weakness seen in physical metals so, overall, from a relative strength point of view, it was not a bad week for the mining stocks. In our memory of the last 20 or so years, weeks like this can sometimes indicate a market that is beginning to firm up and can sometimes be seen in retrospect as a key element in a larger trend change. For the Juniors to gain ground, after having been so weak for so long, suggests perhaps the sector is finally all sold out. We did a little deeper checking and went through the FSO 40 components on the week, and can report that 18 were up, 19 were down, and 3 were unchanged, so again a flat performance in the breadth, whereas in recent days gone by, that would have easily been two or three to one negative. A change in major trend character perhaps first revealed by a change in the wind? Maybe. For the FSO Junior Mining Index, the week yielded a close of 234.00, up from 233.64, with the index also closing back above the 50 day average at 236.55, and still below the 200 day average at 268.17.

Within the Sub-Indices, the Junior Producers ended at 267.93, up 1.09 index points from last weeks close of 266.84, a gain of .4% with the 50 day average ending at 257.67, and the 200 day average at 276.26. Development Stocks were quite strong on the week, with the FSO Development Index ending at 485.74, up 9.08 index points in a broad based advance to close above last weeks close of 476.66. On the week, the Development Index gained 1.90% and closed above get this, BOTH the 50 and 200 day moving averages with the 50 day ending at 467.45, and the 200 day ending at 485.32, we actually rechecked those numbers several times because at first glance we didn’t believe it ourselves, but the numbers are correct, and on a technical basis, that is no small accomplishment. Next, the FSO D&E Index, the Development and Exploration Index ended at 225.61, up .96 index points at 224.65, a gain of .42% on the week. For the D&E Index, the 50 day average is resistance at 229.37, and the 200 day average is resistance at 260.04. Finally, Exploration stocks, edged a little lower on the week, ending at 138.90, down 1.74 index points or 1.23% from the prior weeks close of 140.64. For the FSO Exploration Index, the 50 day average ended at 150.01, with the 200 day average at 184.95.