Last weekend, we finally managed to watch the movie “Gold”. What can investors learn from it?
It’s Friday, so we can discuss some lighter topics. For those who are not moviegoers, “Gold” was released a few weeks ago.
It’s definitely not a masterpiece and the main problem is that it’s far from clear what the movie was supposed to be: a critique of capitalism, like the cult “Wall Street”, or rather a biographical crime comedy, like “The Wolf of Wall Street”. However, although the narrative is rather poor, McConaughey’s performance is great and the soundtrack is awesome, especially the excellent song “Gold” written by Iggy Pop – you can listen to it below.
And the movie should be interesting for gold investors. It does not, of course, explain how the precious metals market works – instead it tells the story of two prospectors looking for gold in the jungles of Indonesia. Interestingly, the film is loosely based on the true story of the 1993 Bre-X mining scandal – one of the biggest mining scandal in history – when a massive gold deposit was supposedly discovered. The company reported in 1995 it was sitting on an enormous gold deposit in Borneo, sending its penny stocks soaring. However, in 1997 it turned out that it was a fraud. When investors discovered that the company salted its drill core samples with gold, Bre-X’s shares plunged.
The lesson gold investors may learn from the Bre-X scandal and the movie is rather simple, but extremely important. First, investing in gold mining companies is something different than investing in gold, it’s riskier. Second, junior miners are very risky – and riskier than big senior companies. It is not only because they may not find any gold, but they can also deceive potential investors. This is why the most important things to remember when investing in the junior sector (when emotions are high) are cautious and diversification.
Disclaimer: Please note that the aim of the above analysis is to discuss the likely long-term impact of the featured phenomenon on the price of gold and this analysis does not indicate (nor does it aim to do so) whether gold is likely to move higher or lower in the short- or medium term. In order to determine the latter, many additional factors need to be considered (i.e. sentiment, chart patterns, cycles, indicators, ratios, self-similar patterns and more) and we are taking them into account (and discussing the short- and medium-term outlook) in our trading alerts.