Something strange is happening in the metals market

Silver typically does what gold does, only more so. But it now appears to be having trouble keeping up the pace.

Over the past 10 years, the two metals have enjoyed a very tight correlation of 0.81. And each daily move in gold has tended to be amplified by 45 percent for silver, according to a regression analysis based on FactSet data. In other words, if gold rises 1 percent in a particular session, silver could be expected to jump 1.45 percent.

This year, however, silver is lagging.

Gold is up 17 percent in 2016 and 10 percent in the past month alone. Silver, meanwhile, has risen just 8 percent this year and 5 percent in the past month.

"Considering how highly correlated silver is to gold, I find it interesting to see such a divergence over the last two to three weeks," Cowen head of equity sales trading David Seaburg wrote to CNBC. "Actually, it's the first time I have ever seen a gap like this."

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One potential culprit is silver's quasi-industrial status. While silver is often considered a precious metal, it also has industrial uses. A weak global industrial environment, particularly in China, has weighed mightily on purely industrial metals like copper and nickel — although to be fair, both have rebounded nicely over the past three weeks.

"Silver is a funky commodity," longtime commodities trader Andy Hecht commented. "Recently it's been wearing its industrial hat rather than its precious hat, but that could change."

Further, gold's rally this year appears to have been driven largely by investor fear. More classic drivers, such as rising inflation expectations, would likely have a clearer read-through to silver prices.

Either way, the stronger performance by gold is certainly raising eyebrows.

"We've had gold lead over the past few years, but now something interesting's happening. At the resistance levels where you typically see that turn, gold has broken out to the upside," Oppenheimer head of technical analysis Ari Wald said Wednesday on CNBC's "Power Lunch," referring to the below chart.

"This is a major breakout, and it suggests gold could continue to outperform," Wald said, suggesting that "the trade is to long gold against a short position in silver."

Meanwhile, some commodities watchers take the opposing view, preferring to play for reversion to the mean, in terms of relative performance.

"Historically, we are in an area of gold outperformance over silver that is not sustainable," said Larry McDonald, a macro strategist and editor of "The Bear Traps Report."

"We're at extremely, extremely lofty levels in terms of outperformance, and I think the risk/reward is much better here to be long silver and short gold over the near term," McDonald said Wednesday on CNBC.


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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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