Wednesday, March 19, 2008

Ups and Downs

I have concluded that markets are psychotic. I suppose this was obvious before, but this is the first time I've had money in more volatile investments where it becomes really obvious.

So, my three holdings up to today were First Majestic Silver (FR), Wavefront Energy (WEE), and iShares Gold Index Fund (XGD). Yesterday, the market was expecting the US Fed to cut interest rates by 100 basis points, and it only did 75. This seems to have caused some kind of major overcorrection in gold prices, and XGD has dropped significantly over the past couple of days. FR has been going downwards ever since it made a private placement a couple weeks ago, and today dropped below 4.60.

On the flip side, WEE announced a major sale of its technology to a Texas oil company, and went from 2.59 at open to 3.56 at its peak today. It's now bouncing between 3.22 and 3.30. While this one was great for me - it hit my sell price of 3.18 around noon and leaving me with a $600 profit on a $1600 investment - in just two weeks - I think that perhaps this is my greatest confirmation of market psychosis. None of the news releases that I found seemed to indicate the value of the deal, but I'm having a hard time picturing it increasing the company's worth by 50%. More if you note that it also posted some hefty gains yesterday.

So here's what I'm trying to figure out - when do you bail on a losing investment. I'm still confident that FR will come back once the market's had a chance to digest 8.5 million shares, but XGD I'm iffy on. I bought it based on some discussions that while gold was in record dollar territory, it was a long way off its inflation adjusted highs. However, because gold is so high, I'm not confident that holding it will come back if I hold onto it in the longer term.

I'm having a hard time pegging exactly what makes gold tick. I would have thought a rate drop of 0.75% would have been good news for gold. But it's dropped a lot in the wake of it. So I've got some reading to do, and if I actually have any readers, would appreciate anyone's thoughts on where gold is going from here.

No comments: