Gold And Silver Prove Once Again, They Go Up When Most Everything Goes Down

As the markets sold off on Thursday, gold, and silver were few of the only assets that remained in the green for the entire day.  Thus, the notion that the precious metals will crash with the markets continues to be proven wrong.  And what an ugly day it was as the Dow Jones fell 450 points at its low, while the Dollar, oil, and shale stocks were clobbered.

Of course, there was a late day rally that pushed the markets off their lows as the Dow Jones Index only closed down by 286 points.  However, the real loser yesterday was oil and oil stocks, especially the shale oil stocks.  As I mentioned in a previous article, THE BLOODBATH IN U.S. SHALE STOCKS CONTINUES: Worst Is Yet To Come, the shale stocks were severely underperforming the major oil companies since the peak in the oil market in October.

Unfortunately, the situation in the shale stocks went from BAD to WORSE.  As the oil price fell 8% over the past two days, with the majority of the decline on Thursday, several shale stocks were decimated.  The following chart shows the price performance between three major oil companies and three shale stocks:

As the oil price fell $1.50 on Wednesday and another $3.5 on Thursday, it impacted the shale stocks more negatively than the major oil companies. While BP, Chevron, and ExxonMobil’s share prices fell 2-3%, the shale stocks plummeted 9-16%.  Continental Resources stock fell 9.5% over the two days, but the real losers were Oasis, down 13% and Whiting, dropping a stunning 16%.

It seems that the shale stocks that focus in the Bakken are much weaker than those in the Permian, like Pioneer and Concho.  However, I believe the other shale stocks will likely follow the same path when they reach peak production.

A perfect example is Whiting Petroleum.  Whiting’s production peaked in Q3 2015 at 127,000 barrels per day of oil and is now down to only 84,000 barrels per day. 

Furthermore, Whiting’s stock price is at $19.32, off its highs of $370 back in 2014.  But, investors must remember that Whiting issued a 4-1 reverse split which actually makes the current value of the stock at $4.83 off its high of $92 in 2014.  When a company does a 4-1 reverse split, that isn’t a good sign.

I believe Whiting is in real trouble, especially when it closes firmly below the Major Support Level of $16. Once the markets finally start to allow the lousy economic fundamentals to kick in, the oil price will drop like a rock.  As the oil price falls back toward $30-$40, it will destroy a lot of these shale companies as they become penny stocks like Sanchez Energy which is now trading at 12 cents a share.

Now, while most of the market was in a SEA OF RED yesterday, gold and silver enjoyed nice gains.  We can see this quite clearly in the next chart. This chart shows the Dow Jones Index versus gold and silver.  As the Dow Jones fell 400+ points out of the gate, gold and silver did quite the opposite:

The Dow Jones Index is displayed by the candlesticks, while the precious metals are shown in the gold and blue colored lines.  The precious metals are doing precisely what they are supposed to… and that is to protect investors while everything TURNS RED.  But, I believe this is only a small taste of what is going to be an explosive precious metals rally when the markets get really ugly.

Now, today we are seeing the opposite as the Plunge Protection Team tries to push the markets back in the green so Americans can enjoy their Memorial Day weekend holiday.  However, after the overall markets gapped higher, the oil price fell, pulling the shale stocks down, once again.  Whiting Petroleum opened higher to $19.95 but is now trading below $19.00… even lower than what it closed at yesterday ($19.32).

Americans need to prepare themselves for one hell of an economic and market downturn.  While the Fed and central banks can prop up asset prices, they can’t prop up a physical economy that is primed for a recession-depression.

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