Well, I mentioned last week to expect this rally to continue (in the Short Term commentary). This seems to be a very deceptive rally that has been on going since the initial sharp plunge of a few weeks back. On the long term P&F chart we are back to the previous highs, although we had been a lot higher but were shy $0.50 for a new high plot due to the $10 units. We seem to have so many experts that are predicting a $600 gold (brave predictions when you are only a few $ away), before the end of this year, it makes one wonder if the rally may not be over. My long term projections are still for $1075 followed by $1575, and I'm going to be bold and predict this will happen before the end of THIS century.

Looking at our normal indicators gold is still far above its positively sloping moving average line. The price momentum is still positive although showing serious weakness on the rally of the past few weeks. Although most often a lagging indicator at market tops the volume indicator has turned to the positive side above its moving average line and the moving average slope is still oh so gently positive.

On the long term all the indicators are still positive so I am still BULLISH.

INTERMEDIATE TERM

Looking at the intermediate term P&F chart we see that almost immediately after giving us a bear signal following the plunge a few weeks back the chart reversed and has been in a rally mode ever since. However, it has not yet reversed that bear signal. Technically, a move to the $575 level would reverse the bear but since we do have a resistance top at $575 I would wait for $580 before reversing. Always better to err on the conservative side if you don't need to catch the first few dollars.

As for the usual suspects, well the price continues to move above its positive moving average line while momentum continues to hold above its neutral line. Momentum here, as in the long term, is showing serious weakness on this latest rally. This is something that needs to be watched. The volume indicator has crossed back above its moving average line but the line is still pointing downward for a mixed message. Daily volume action leaves a lot to be desired but I'll comment more on this in the Short Term comments.

The indicator shown today on the intermediate term chart is a Price Rate of Change (ROC) indicator (note that commentaries on some sites may not have this chart, and others, due to a limitations on publication. Full commentary and charts can be found on my home site front page at www.themarkettraders.com ). The one shown is a percentage rate of change and shows the percentage rate of change versus 50 days earlier. It's just another way of showing if the latest action is still staying above or below some designated intermediate term level. All the normal methods of looking at a momentum indicator are applicable to this chart, above or below a neutral line, new highs or new lows confirming the price highs and lows, volatility (i.e. % above or below the neutral line), etc. What it's telling us now is that the action is still 12% above the value of 50 days ago. This is a positive reading. Of concern is the possibility that we might end up with a negative divergence versus price action and that would not be good. We're not there yet but working towards it.

As for our FAN Principle bear signal of a few weeks back, well, that is still alive and well. The action would need to hit new highs to cancel that signal.

Despite the FAN and the P&F, the other indicators are still positive but I'll stick with the FAN and P&F and remain BEARISH on the intermediate term.

SHORT TERM and IMMEDIATE TERM

The short and immediate term analysis can be found in the subscriber's section of Merv's Precious Metals Central at www.themarkettraders.com.

This week's action has been quite interesting. The major Indices had performance values all over the place, from a gain of 2.5% for the S&P/TSX Capped Gold Index to a loss of 2.4 % for the PHLX Gold/Silver Sector Index (XAU). When you go to the less used North American Indices we have the S&P Gold Index with a loss of 8.3%. As I said, all over the place. (We'll get into the Merv's Indices later). What goes on here?

Well, it seems that the biggest problems were Gold Fields Ltd and Newmont Mining each with major losses on the week (10.6% loss for Gold Fields and 8.3% for Newmont). The S&P Gold Index has only one stock and that is Newmont. Can you see why the Index lost 8.3% on the week? Right, it was the same 8.3% that Newmont lost. As for the XAU, these two stocks alone contribute over 30% towards the overall Index value. The major component stock, Barrick with a 20% value by itself, was no help gaining only a miniscule 0.1% while the only other double digit value component stock, AngloGold Ashanti, lost 4.5%. Now Bema Gold, which gained 11% on the week and should have nullified to a considerable extent these losses, had very little effect on the Index value with its small 1.8% contributing value.

Don't you think it's important to understand what is meant when you hear of an Index gaining or losing a certain amount of points or %? Now, do you think that the media commentators or most analysts understand what they are talking about when they mention one of these Indices? I don't think that 95% of them have a clue what they are really talking about. Well there goes my chance of ever being interviewed by a media person.

One word about foreign currency values. When comparing Indices that are calculated in different countries one must be aware of the currency fluctuations. You may have the S&P/TSX Gold Index (calculated in Canadian dollars) and the PHLX Gold/Silver Sector Index (calculated in U.S. $) gain equally on a week but if the Canadian Dollar also gained versus the U.S. Dollar then the S&P/TSC Gold Index was a superior move versus the PHLX Index, each with the same % Index gain. I have made no allowances in the Gold Indices tables to account for weekly currency moves.

The Merv's Indices also performed all over the place but these performances were all on the plus side. The performances ranged from a gain of 1.5% for the Qual-Gold Index to 13.0% for the Spec-Silver Index. Silver continues to dominate on the exuberance scale.

With the Merv's Indices you know what they are telling you. They tell you what the overall average gain or loss was for all component stocks, each with an equal weight towards the Index value. Except for the Merv's Qual-Silver Index, I try to maintain a decent number of component stocks in each Index so that no one component has a significant effect on the final Index value. Where Barrick has a 21% weight towards the calculation of the PHLX Gold/Silver Sector Index it only has a 3.3% weight towards the calculation of the Merv's Qual-Gold Index, as has each and every other component stock. The greater the number of component stocks in an Index the less of an effect each component stock has on the Index value using the equal weight concept.

The Merv's Indices are made up off stocks traded on both the U.S. and Canadian Exchanges. I do not take currency differences into account and that may be one failure in these Indices, although this is minor effect. The fact that the two country stock activities are included in the same Index is not a problem by itself. A 100% move in the Canadian price is the same as a 100% move in the U.S. price, although the actual $ may be different. If a stock should rise from $1.00 US$ to $2.00 US$ on the U.S. market it would rise from, say, $1.25 CDN$ to $2.50 CDN$ in the Canadian market, different $ price but the same % value. Now should the Canadian Dollar gain 5% versus the US$ during this time period, then the final rise in the Canadian stock would have been to the $2.375 level to account for the strengthening CDN$.

With the large changes in Index values over the years versus the differences in US/CDN currency variations I would not FOCUS on currency differences when speculating in gold stocks. You are not going for a 10% to 20% gain on the year where currency variations make a difference (if you are you should not be in the precious metals game). You are going for 100% and 200% (or more) gains on the year where these differences are minor.

MERV'S GOLD & SILVER 160 INDEX

Now that we know all about the development of the Index value let's see how our universe of 160 precious metal stocks did during the week. I focus on several different aspects of the weekly activity since the Index performance by itself does not tell the whole story. We have this overall universe but also individual sector groups where we are more likely to determine what is moving and what is not.

On the week the universe of 160 gold and silver stocks gained on an average, 5.3%. Not bad for an average of 160 stocks. This Index is rated as the fourth best performer over the past intermediate term period. While the Index continues to climb into new all time high territory the long term momentum indicator continues to struggle. It does remain, however, in the zone where the past three previous highs were reached and the Index took a several month hiatus.

On the week we had 106 gainers and 45 losers, a slight reduction on the positive and a slight gain on the negative. Nothing yet serious from a reversal of trend standpoint. The intermediate term BULL rating for the universe remained constant at 71% while the long term rating gained a notch from 86% to 88%. Again, noting serious happening yet.

As for the over speculation where I look to see what stocks gained or lost 30% or more on the week, the largest single mover out of a total of 6, was Tone Res. Inc. which gained 77% on the week. See separate section on the 6 30% plus winners at the end of this commentary.

MERV'S QUAL-GOLD INDEX

The quality stocks had the poorest performance of the Merv's Indices but even here it was still on the positive side with a gain of 1.5%. This Index has the poorest intermediate term performance of all of Merv's Indices with a rating of ninth best. It is still better than most of the North American Indices. As with all of Merv's Indices this Index continues to inch its way into new high ground but here too the long term momentum is a problem. Momentum is almost at the level of previous high Index points before a significant halt to the bulls.

As with the 160 Index here too we had a very small decrease in gains and an increase in losses with gains dropping from 22 to 21 this week and losses increasing from 6 to 9 this week. With twice as many quality stocks advancing than declining it sure puts a question mark on the major North American Indices. The BULL ratings also had a minor decrease with the intermediate term bull rating dropping from 62% to 55% and the long term bull rating dropping from 92% to 90%. The intermediate term is getting close to a bear rating but not yet. The long term still has a long way to go. The short term is neither a bull nor a bear rating with both being less than 50%.

MERV'S SPEC-GOLD INDEX

As we go from high quality to medium quality we improve our weekly performance. This group of 30 of the second tier precious metal stocks gained 2.7% on the week, not the best but better than any of the major North American Indices. This Index is rated as fifth in intermediate term performance of all the Indices in the Gold & Silver Indices table. The Index continues to inch its way into new high territory but the long term momentum indicator, although still very positive, is showing signs of refusal to move higher. The strength of the Index climb is diminishing.

Here again, we have a decrease in the number of gainers on the week from 25 to 18 and an increase in the number of losers on the week from 5 to 10. Another week of such moves and we could have a trend reversal in the making. As for the BULL/BEAR ratings, the intermediate term rating had a serious drop from 72% to 62% while the long term stayed constant at 87%. Despite the intermediate term drop the short term bull rating did climb back from a neutral 45% to a bull 57% rating on the week. Weird how the short term climbs 12% while the intermediate term drops 10%.

MERV'S GAMB-GOLD INDEX

Well, if you want to know what kind of gold stocks are moving and where you should be placing your speculative capital, it's here in the gambling sector. Merv's Gamb-Gold Index had a spectacular gain of 10.4% on the week. Five of the six stocks with gains greater than 30% this week are component stocks of this Index. This is the second best performing Index in the intermediate term. This Index continues to zoom higher into unchartered territory with a long term momentum indicator that is strong but still quite some distance from previous highs when the Index came to a halt. This Index was updated at year end but still has an upside performance of 112% from the previous May low. If the present component stocks had been in place on that May low the performance would have been 210%. Anyway you look at it; this is the place to be (also see the Spec-Silver group).

Despite the performance we had a decrease in winners from 21 to 18 this week and an increase in losers from 4 to 9. As you can imagine, the winners were considerably better in % gains. As for the BULL/BEAR ratings, we had the intermediate bull rating drop from 80% to 75% this week while the long term bull rating remained constant at 95%. As with the Spec-Gold Index, the short term bull gained from a neutral 42% to a bullish 57%.

THE SILVER INDICES

This is really where the action is. Silver is climbing into new bull market highs and the silver related stocks are taking to the stratosphere. If you want action, other than the gambling gold stocks almost any silver related stock will do.

MERV'S QUAL-SILVER INDEX

There are only 10 component stocks in this group each with a 10% influence on the Index value. I would prefer a far greater number of component stocks but there were just so few to place in this group. The Index gained 4.7% on the week, good but not great. This Index had the third best performance over the intermediate term of all the Indices in the Gold & Silver table. The chart shows the Index pointing almost straight up and we know such a trend cannot last for long. Long term momentum is also climbing rapidly and is almost at the level of the 2002 top. All is in place for a halt to the silver bull but wait for it to happen as the trend could always over extend itself far higher than anyone could imagine.

We had two losers this week where we had none last week. As for the BULL/BEAR ratings, we are at 100% bull rating for all time periods. Can a reaction be far behind?

MERV'S SPEC-SILVER INDEX

Do you want action? DO YOU WANT ACTION? YOU CAN'T STAND THE ACTION. My apologies to Jack Nicholson but if you want action HERE IT IS. Up a spectacular 13% on the week. That's an average of 25 component stocks. And it wasn't just one or two stocks that moved, 12 stocks had double digit gains on the week, that's almost half of all component stocks. Now, we know this cannot last but I guess we should enjoy it while we can. This is the best performing Index over the intermediate term period. The Index continues to zoom into no man's land where it has never been before. Momentum is also moving higher fast and is almost at the extreme level that halted the 400% advance two years ago.

With this advance we have the BULL/BEAR ratings in the bullish 100% level for both intermediate and long term periods. However, the number of gainers dropped slightly from 22 last week to 20 this week. Losers also climbed slightly from 2 to 3.

30% PLUS, WEEKLY WINNERS

There were 6 stocks that gained 30% or more during the week. There were no losers in this category. Some brief comments on the 30% plus winners.

ECU Silver Mining Inc. Gain on the week, 43.5%. Last went POS (BULLISH) in our technical ratings on 06 Jan 2005 at $0.50. Gain since going POS, 164% in 8 weeks.

Tone Res. Inc. Gain on the week, 77.6%. Tone just turned POS with this week's activity.

Due to time constraints during the week-end I will no longer be able to provide the Non-Edible Futures commentaries. The table of technical information and ratings will, however, continue as will the occasional futures chart.

Mervyn Burak, CMT
Hudson Aero/Systems Inc.
Market Technical Information Group

www.themarkettraders.com
merv@themarkettraders.com

26 February 2006

During the day Merv. practices his engineering profession as a Consulting Aerospace Engineer. Once the sun goes down and night descends upon the earth Merv. dons his other hat as a Chartered Market Technician (CMT) and tries to decipher what's going on in the securities markets. As an underground surveyor in the gold mines of Canada's Northwest Territories in his youth, Merv has a soft spot for the gold industry and has developed several Gold Indices reflecting different aspects of the industry. As a basically lazy individual Merv's driving focus is to KEEP IT SIMPLE.

To find out more about Merv's various Gold Indices and component stocks, please visit www.themarkettraders.com and click on Merv's Precious Metals Central. There you will find samples of the Indices plus other publications of interest to gold investors.