Financial Sense Junior Gold Mining Index Review by Frank Barbera 07/01/2008

General Comments

A steady downdraft in the US Dollar, falling stock markets, and another devastating week in the financials, all contributed to a crisis mind set with money flowing into the gold market in ‘flight to quality’ mode. Seeking out the Yellow metal as a safe haven re-directed capital drove Gold prices sharply higher during the last two days of the week with the result being a strong advance for the midas metal. On the week, Gold netted out to a solid gain of $26.30 per ounce, or 2.91% to close at $927.15, up from $900.85 the prior week. Yet, while Gold prices were strong, the rest of the precious metals were somewhat lack lusted with Silver edging higher by .14 on the week to close at $17.49, up from 17.35. Platinum developed a strong case of narcolepsy and snored its week through the week, gaining just $3.00/oz to close at $2056, up from $2053 the prior week. While metals prices faired reasonably well, hot money seemed intent on running up the mining stocks which soared out of proportion to the rise in the metals. On the week, the XAU exploded for a gain of 8.82%, a staggering advance of 15.76 index points to close at 194.36, up from 178.60 the prior week. Within the XAU, FCX, a copper mining company ended the week lower by $.60, so XAU gains would have been stronger ex-FCX. This line of thought was validated by the massive advance seen in other metal mining indices, such as the HUI, which gained 38.78, or 9.40% and the GDX ETF, which gained 10.15%. One possibility that must be considered given the timing of this weeks rally is a rotation into mining stocks heading into the end of quarter with money managers perhaps not wanting to show big losing positions in financials.

At weeks end, the Junior Mining Index had a tough time keeping up with the seniors as the FSO ended with a nice gain of 3.63% or 8.03 index points, far shy of the 10% advance seen in majors. For the Junior’s, the gain totaled 8.03 index points with the FSO Junior Mining Index ending at 228.97, up from 220.94 last week. On Friday, the 50 day average ended at 226.51, with the 200 day average ending at 265.39. Within the sub-indices, the bias toward Junior Producers remained intact with the FSO Junior Producer Index ending at 283.97, up from 259.06 for a gain of 24.92 index points or 9.61%. For the Junior Producers, the 50 day average ended at 256.15, with the 200 day average ending at 277.63.

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

Elsewhere with the sub-indices, the action was far less inspiring with the FSO D&E Index ending the week up just 1.33%. On the week, the Development and Exploration Index ended at 212.89, up 2.80 index points from the prior weeks close of 210.09. The 50 day average ended at 218.35, with the 200 day average ending at 256.71.

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

For Development stocks, the week saw prices gain by 9.64 index points, a reasonable gain of 2.16% with the index closing at 455.03, up from 445.39. For the Development Index, the 50 day average ended at 460.71, with the 200 day average ending at 485.67.

Financial Sense Junior Gold Index™

Junior Exploration Index

Above: FSO Junior Exploration Index

Finally, Exploration stocks ended virtually unchanged with the FSO Exploration Index ending at 132,17, up .52 from the prior weeks close of 131.66. The 50 day average ended at 137.56, with the 200 day average ending at 180.39. Looking at some of the first half performance figures for 2008, we see quite a striking dichotomy in the numbers. YTD the XAU through Friday is up 20.44 index points or 11.80%. Year to Date, the FSO Junior Mining Index is down 44 index points or 16.11%, while the D&E Index is down 19.13% YTD, and the Junior Producers are up 2.53%. Obviously, the market is favoring the cash flow and earnings which come from actual production while discounting in relative terms metal in the ground. As a result, we note that on a relative strength basis, Junior Mining companies continue to remain locked in a seemingly unrelenting downtrend, with the R/S Ratio of Juniors to Seniors falling to yet another new low in the week just past.

Financial Sense Junior Gold Index™

Relative Strength Ratio of Jrs vs. XAU

Above: Relative Strength Ratio of Juniors (FSO Index) versus XAU (seniors)

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.