The number 20 makes me nervous about the market: Strategist

This year's silver surge has investors gleefully flocking to the precious metal, but one strategist believes that same enthusiasm could spell trouble for the market rally.

With markets setting records last week, Nick Colas, chief market strategist at Convergex, is concerned about what the price of silver could mean for markets in the long term. The metal has surged 46 percent since January, and is now trading at $20, a bit lower than the two-year high of $21.22 achieved early this month.

"If the stock market rally is something we should take seriously, it should mean precious metals, which are a classic safety trade, should begin to come down in value," he said Friday on CNBC's "Trading Nation." "[Plus] I find it disturbing that silver doesn't really break $20, and gold doesn't really break $1,300."

"I'm looking for precious metals to pull back in order to believe the equity rally is more than just a little snapback after a period of volatility after Brexit," he said.

Silver has outperformed gold as of late, but the rise of both metals has traders also concerned about the gold-silver ratio, which essentially defines the amount of silver it takes to purchase one ounce of gold. The ratio has declined more than 10 percent over the past month as silver surged in price.

That has Larry McDonald, head of global macro strategy at ACG Analytics, equally concerned about the levels he's seeing in both precious metals, especially given past trends.

"The last time [the gold-silver ratio] got here was 2011, and the summer of 2011 we lost 18 percent of the S&P 500," he said on "Trading Nation."

What's more, the metals could be hit this year in light of possible action from the Federal Reserve. Though the central bank has wavered on a rate hike so far this year, commodities prices could be hurt should the Fed finally go through with one.

"As the Fed might potentially get forced into doing something before the end of the year because their great cop-out has been inflation and deflation, that could get a stronger dollar going," said McDonald. "That's going to hurt the metals and once again, it's going to hurt oil. All that debt globally that's tied to oil and commodities, that [becomes] a problem and then you get a risk-off in the market."


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

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

Read more