Citi Says Silver is Best Asset if Dollar Falls

Citi Group analysts, led by Maximillian J. Layton, are forecasting more troubles for the Dollar and continued upside for silver in the coming months. Citi believes there is more than a 10% upside on the current bull run, with a target of $30-34 within six-twelve months for the shiny metal. Citi increased its "bullish" three-month forecast to $28 from $24 and its six-month forecast to $30 from $28. Citi is making predictions based on the December silver futures, which are up more than 13.6% since mid-March. Citi believes silver is the best asset if the Dollar falls.

The analysts believe the current situation is reminiscent of the second half of 2007 and early 2008. "Precious metals, especially silver, has near perfect conditions for the ongoing bull market," Citi Group analysts said. Developed economies are showing significant weaknesses, and emerging economies are growing. The paired economic conditions have indicated precious metal bull markets for the last two decades. Citi believes there could be a rapid price expansion. The analysts pointed to the summer of 2020, when silver spiked from $19 to $29/oz in three weeks, and prices exploded from $18 to $48/oz between August 2010 to April 2011 as proof of their claim.

Three developing situations lead to Citi's belief that silver's run will continue. First, the Dollar will weaken against other currencies. Second, interest rates are going to have long-arching effects throughout the economy. Third, even more investors will realize the gravity of the economic situation over the coming months and turn to precious metals for protection, spiking silver's demand. 

China’s GDP grew by 4.5% in the first quarter as strict Covid lockdowns ended. Morgan Stanley predicts the Chinese economy will grow by 5.7% in 2023. The Federal Reserve expects the total 2023 U.S. GDP growth will only be 0.4%. The Congressional Budget Office predicts U.S. GDP will be 0.1%. The graph below is from the CBO’s website.

Most of the market believes interest rates will decrease in late 2023. Even if they do, which is not as likely as the pundits say, long-arching effects will be felt for years. Research and development projects' long-term return on investment will be connected to the project's total cost. Many companies have slowed new projects, forgone higher interest rate financing, or will have a higher long-term cost due to higher interest rates. A ripple will expand throughout the cash flow cycle over the next few years. The chart above shows GDP growth will be below the trend for about a decade. The World Bank said the rest of the decade's growth would be the lowest in over three decades and "may be a lost decade". As time passes and more investors experience losses, the demand for silver and other precious metals will increase.

The demand for silver has a lot of room for growth. The current demand in the silver futures market is about $7 billion. The demand grew between $12-26 billion in previous silver bull markets mentioned above. The increased demand and insufficient supply will drive prices up. Citi stated there is a negative correlation between interest rates and silver ETF buying. If interest rates drop, there will be an upward demand in the silver ETF market, which will happen this year. "ETF buying seems strongly negatively correlated with U.S. real interest rates, and thus a significant move lower in real rates could provide a great (demand) move higher during 2023," said Citi. However, banks are taking record delivery from the COMEX, so there won't be silver to cover the ETF demand. 

Citi Group is correct. There are many reasons to think silver has an incredible upside, but most people looking to make money from short-term price movements are in the paper market. People that want long-term protection are in the physical market. When salespeople (of any kind) start talking about how much money you will make, turn the skepticism to full volume. There are no guarantees, and past performance does not predict future results. With that said, the price will probably climb further this year. There is no reason to wait for the market to increase, so you must pay more. If the silver prices go to the moon, consider it a bonus for committing to protect yourself. 

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U.S. Gold Bureau

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