Silver weekly forecast: losing on both of its jobs

Gold with a day job

It is tempting to treat silver as cheap gold: if gold falls 6%, silver should fall about the same. This month silver fell about twice as far. The reason is that silver has two jobs, and higher interest rates are bad news for both.

The first job is gold's: a metal that pays no income, held as a store of value. Like gold, it competes with Treasury bonds, and the 10-year now pays about 5.2%, the most since 2002. The second job is industrial: solar panels, electronics and electrical parts account for more than half of the silver bought each year. Higher rates slow the economy that buys those panels and parts.

So when rates rise, gold loses one argument and silver loses two. Silver is gold with a day job, and right now the economy is threatening the job. The gold/silver ratio near 70 is the market's way of saying it trusts the store-of-value job more than the industrial one.

Silver also trades in a much smaller market than gold, so the same flow of money moves it further in both directions. That is why silver tends to fall harder in weeks like this one, and why it can also rebound harder once rates turn.