Financial Sense Junior Gold Index

General Comments

More signs of an intensifying financial crisis produced a sharp decline in the trend for the US Short Term Rate Index which in turn undermined last weeks US Dollar rally and simultaneously boosted precious metals which recorded solid gains on the week. From last weeks close of 1.93%, the Short term Rate Index slid four out of five sessions with flight to quality buying driving yields down to a week end close of 1.80% with a low on Friday of 1.75%. For the US Dollar Index, the retreat in rising short-term rates translated into a sell off from 74.13 - last weeks close - to a close on Friday of 73.05; a decline of 108 basis points or 1.45%. A sampling of various headlines is shown against the short-term rate chart below:

Above: the US Short Term Interest Rate Index, moved sharply lower on flight to quality buying last week. 

As a result of the weaker US Dollar, gold prices rose four out of five sessions ending the week with a gain of $30.65 dollars per ounce or 3.52% to finish at $900.85, up from $870.20 the prior week. Elsewhere on the Comex, Silver prices also rose with spot Silver ending at $17.35, up $.82/oz from last weeks close of $16.53. On the Merc, spot Platinum also rose, gaining $26.00/oz to close at $2053.00, up from $2027.00 for a gain of 1.28%. With spot metals prices moving solidly higher, mining stocks managed relatively decent gains with the XAU gaining 3.02 index points or 1.72% to end at 178.47, up from 175.45. At the same time, the GDX ETF ended at $43.84, up 1.59%, while the HUI ended with a gain of 3.64% Overall, with the exception of Newmont Mining (NEM) which gained 4.2% on the week, the advance in large cap miners was not a strong performance and was not broad based. Not surprisingly, with very little buying enthusiasm evident in the majors, juniors miners fought a losing battle and ended the week with a loss. At the close, the FSO Junior Mining Index ended at 220.94, down 3.13 index points from last weeks close of 224.07. The 50 day average for the FSO ended at 229.12, with the 200 day curve finishing at 266.62. Junior Producers were also lower, with the FSO Junior Producer Index ending at 259.06, down 1.4% from last weeks close of 262.73. 

Financial Sense Junior Gold Index™

Junior Mining Index

Above: FSO Junior Mining Index

Financial Sense Junior Gold Index™

Junior Producer Index 

Above: FSO Junior Producer Index 

Financial Sense Junior Gold Index™

Junior Development and Exploration Index (non-producers)

Above: FSO Junior Development and Exploration Index (non-producers)

Among the secondary stocks - the non-producers - results were even more negative with the FSO Development and Exploration Index slipping 1.66% to finish at 210.09, down 3.56 Index points from last weeks close of 213.65. The FSO Development Index ended down -12.35 index points or -2.69% to finish at 445.39 dipping from last weeks close of 457.74. Exploration stocks also lost ground with the FSO Exploration Index losing .5% to finish at 131.66, lower from the prior weeks close of 132.29. For the Development Index, the 50 day average ended at 464.80 with the 200 day average at 486.55, while for the Exploration Index the 50 day average ended at 140.37, with the 200 day line at 181.94. The Exploration Index ended the week within 1% of a new 52 week New Low.

Financial Sense Junior Gold Index™

Junior Development Index

Above: FSO Junior Development Index

Financial Sense Junior Gold Index™

Junior Exploration Index

Above: FSO Junior Exploration Index

Financial Sense Junior Gold Index™

Jr. Producers, Jr. D&E, R/S Ratio of Non-Producers

Above: top clip, Producers, middle clip – Non-Producers, bottom clip: R/S Ratio Non-Producers to Producers. When the curve moves lower, non producers are weaker then producers. 

In this week’s analysis, we do some additional computations on relative strength. More specifically, we compare the Relative Strength Ratio of the Producer Index to the Non-Producers (the FSO D&E Index). What we find shows that since the Credit Crisis began, there has been a distinct under-performance of companies which are dependent of fresh financing in order to forward in the ground development stage projects. Unlike Producers, where production generates fresh cash flow and allows producers to often become self financing, non-producers have been suffering as the cost of new capital has been rising with the price being paid by non-producers in the form of more dilutive financing deals. In the next chart, we see the R/S Ratio of Non-Producers to Producers (thin line) versus the 2 year Bond Yield where it is clear that as the Credit Crisis forced yields down, for smaller emerging companies the environment became more negative with the R/S Ratio following short term yields lower. This is perhaps the ultimate ironic outcome in that it has been decades since metal prices of all stripes have been this high, and now with high prices, small cap companies have been undermined by a reduced access to available credit & financing.

Financial Sense Junior Gold Index™

2 Year Bond Yield vs. R/S Ratio Non-Producers vs. Producers

Above – 2 Year Bond Yield (thick) and R/S Ratio Non-Producers versus Producers (thin)

That’s all for now,
Frank

© 2008 Frank Barbera. All rights reserved.
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.