How to Make, or Lose, Money Out of Discoveries

How to Make, or Lose, Money Out of Discoveries

Straight after we declared a golden Christmas for all, the gold and silver prices were crushed on Monday night's trading in New York. Doh! That the markets move by actions and reactions is nothing new, so that alone would have been good cause for profit taking by traders after experiencing such a great week. However, this time around it was more attributable to CME Group increasing margin requirements for gold, silver and PGMs in response to the increasing volatility of the metal prices. That should be seen as a prudent move designed to keep excessively aggressive traders under control.

Exploration is all about trying to make a big discovery. It is the ultimate sign of a success for the geologists involved but what does it mean for shareholders, both existing and future shareholders?
We have taken a snapshot of five companies that have reported discoveries in recent years and looked at how the share prices have performed. These demonstrate a point that needs to be considered. A scramble for stock on the day of the announcement is likely to take the share price to inflated levels that are very difficult to maintain, for a number of reasons. Therefore, if you want to be a successful trader, perhaps you should take profits. If you are a longer term investor, there will be a subsequent, better entry point. There is no crystal ball but I find the balance of probabilities is a useful starting point.

The five companies are AGC, LMS, MEU, RTR and WTM - all under chart coverage.