Financial Sense Junior Gold Mining Index Review by Frank Barbera 06/17/2008

General Comments

A chorus of high-level officials including President George Bush, Treasury Secretary Hank Paulson and Fed Chairmen Ben Bernanke turned up the volume from the Fed ‘Open Mouth’ Committee last week, coming out in defense of the US Dollar and the vaunted US “Strong Dollar Policy”. Supporting the case were comments from other Fed governors who pointed to the accelerating inflation and the fact that market set, short term interest rates have been recently moving higher. As Fed Fund Futures leaned toward pricing in a ‘tightening’ , the US Dollar surged to its best week since March 24th. 2005, gaining 2.41% on the week to close at 74.13. Not surprisingly, the rise in the Dollar resulted in a severe bout of downside pressure on precious metals and mining stocks. However, before moving on, we want to point out that the Short Term Interest Rate Index which has indeed been rising now for a number of weeks, ended last week with the medium term 14 day RSI back to fully overbought condition. As can be seen in the chart below, the Short Term Rate Index is almost all the way back to the declining 100 day upper band.

Note also the huge volatility that has characterized short term rates in recent months. In conditions like this, market sentiment should be expected to swing across a radically wide spectrum with the recent swing toward the perception of rate hikes potentially marking yet another medium term extreme. Of course, there is nothing to say we could not see this condition prevail for another week or two, but precious metal fans should understand that as counter-trend movements go, the ‘advance’ in short term rates at this stage of the game looks mature to say the least. Of course, like any good bandwagon effect, the facts will never stop the last irrationally panicked investor from attempting to jump on the train just as it is headed over the cliff. We all remember Tech stocks just a few short years ago.

Financial Sense Junior Gold Index™

Short Term Interest Rate Index

Above: Short Term Interest Rate Index

No, in our view, cast against an overall economy that continues to positively crater, the near term fanciful notion of a Fed tightening should soon be cast to the wind and with it the last vestiges of the US Dollar bounce. Of course, as with all things market related, only time will tell, We just thought we’d point this out, as a counter-balance to all that never ending cable TV supported Fed speak and FOMC $ cheerleading. With that technical point off our chest, we can recount that the rise in the Dollar sent Gold down $31.15 per ounce last week to close at $870.20, down from 901.35 for a loss of 3.45%. At the same time, spot Platinum slumped by $43 oz to close at $2027 down from $2070 for a loss of 2.07% while nearby spot Silver tumbled $.95 per ounce to end the week with a decline of 5.43%. Spot Silver finished at $16.53, down from $17.48. With the blood letting in precious metals, it should come as no surprise to readers of this column that mining stocks off all stripes took a cayak ride over the falls. For the XAU, the week generated a loss of 8.13 index points or 4.42% with the index closing at 175.45, down from 183.58. However, the loss in the XAU actually understated the sector wide carnage as XAU Copper-Base metal component Freeport McMoran ended the week with a gain of 7.53 dollars per share of 6.50% helping to moderate the XAU’s downside movement. Elsewhere, the GDX Gold Miners ETF plunged by a whopping 7.58%, while the Amex Gold Bugs Index plunged by a similar 7.66%, highly unpleasant results in both cases.

While we may assuming our own role as Chairmen of the Clutching At Straws Committee, Junior Miners actually held up somewhat better then the large caps in the week just past. Mind you, the results were still ‘NOT! fabulous’ as the FSO Junior Mining Index tanked by 4.81% to end at a reading of 224.07, down 11.34 index points from the prior weeks close of 235.41. For the FSO Junior Mining Index, the 50 day average ended at 231.77, with the 200 day average ending at 267.24.

Financial Sense Junior Gold Index™

Mining Index

Above: FSO Junior Mining Index

Financial Sense Junior Gold Index™

Junior Producer Index

Above: FSO Junior Producer Index

Among the secondary indices, the FSO Junior Producer Index ended the week at 262.73, down 11.14 index points or 4.56% below the prior weeks close of 273.87. For the Junior Producers, the 50 day average ended at 256.52, with the 200 day average ending at 277.31. Development and Exploration stocks were also on balance materially lower with the FSO D& E Index ending down 11.21 index points, or 4.98% to close at 213.65, down from 224.86. For the D&E Index, the 50 day average ended at 224.51, with the 200 day average at 258.87.

Financial Sense Junior Gold Index™

Development & Exploration Index (D&E)

Above: FSO Junior D&E Index (Development and Exploration)

Financial Sense Junior Gold Index™

Junior Development Index

Above: FSO Junior Development Index

Within the sub-indices, the FSO Junior Development Index ended at 457.74 down 21.24 index points or 4.43% from the prior weeks close at 478.98. For the Development Index, the 50 day average finished at 467.11, with the 200 day average ending at 486.54. Exploration stocks were especially weak and hard hit, with the FSO Exploration Index ending down 7.59 index points, or 5.62% to close at 132.29, down from 140.18. For the Exploration Index, the 50 day average ended at 143.65, with the 200 day average ending at 182.97.

Financial Sense Junior Gold Index™

Junior Exploration Index

Above: FSO Junior Exploration Index

Financial Sense Junior Gold Index™

Junior Mining Index vs. Large Cap XAU Rel. Strength Ratio

Above: FSO Junior Mining Index versus Large Cap XAU Relative Strength Ratio

Finally, we end this weeks update with a glance at the Relative Strength Ratio of Juniors to Seniors, which while still below the medium term declining trend line, has been consistently basing over the last few weeks, throughout all of this volatility, -- one note of real hope.

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.