Silver is Poised to Surge, Says Citi

From Birch Gold Group

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: A 60% or more gain for silver could be on the way, central banks are gold’s greatest ally, and inflation will keep pushing gold prices higher.

Citi: Silver could hit $50 in less than a year with $100 as another target

The past six months have forced millions to reassess their savings and have urged those with little or no exposure to finance to take a good look at the precious metals market. Although gold and silver are often invested in in tandem, gold’s comparatively high market price has repeatedly driven folks with a lesser budget towards silver as an alternative that can accomplish just as much.

According to the latest price forecast by Citi, both existing and prospective silver investors have plenty to look forward to, as the metal seems ready to post a 60% gain after hitting a seven-year high earlier this year. This would translate to a price target of at least $40, with Citi’s Forex team leaning closer towards $50 and listing $100 as yet another point to capture.

Citi’s analysts see no shortage of drivers to propel this bout of bullish price action, as investment demand is expected to meet a growing array of industrial uses. On the investment side, the ongoing currency debasement and heightened inflation expectations look to be the strongest drivers, followed by increasingly unappealing bond and stock markets.

With 80% of silver consumption being tied to a nation’s GDP and 50% coming from the industrial sector, silver is very well positioned to react to any form of pandemic recovery. The metal should also remain a persistent beneficiary of the global move towards a greener infrastructure, which includes but isn’t limited to U.S. presidential candidate Joe Biden’s stated goals. As Citi pointed out, the downside to silver isn’t particularly concerning with $20 emerging as a bottom, noting that the coming gains in the market will likely resemble those from 2009-2011.

Central banks are set to remain gold’s biggest price drivers

Central banks, which remain as reluctant as ever to give a formal nod to gold, are nonetheless set to stay in their position as the metal’s biggest drivers by a significant margin. As impressive as gold’s gains have been so far this year, analyst James Rickards is among those who view the 20% climb as the beginning of a prolonged surge upwards. Rickards believes that the bull run in gold could very well bring the metal to $10,000 by 2024 and $14,000 by 2026.

Rickards arrives to these valuations by simply taking into account the price movements during the previous two bull markets in gold, the one between 1971 and 1980 and the more recent 1999-2011 one. And, as the analyst notes, central banks could end up propelling these gains despite sky-high demand from private investors.

While the shift in money managers’ view of gold and a move towards a necessary portfolio allocation of up to 10% is of undisputed importance, the official sector is primed to emerge as gold’s biggest ally. As Rickards points out, the stock market only managed to avoid a collapse this year due to a massive Federal Reserve bailout, which cemented the threat of inflation and all but eliminated the appeal of the bond market.

All along, central banks have been hoarding gold bullion to protect themselves from unfavorable outcomes, and the coming U.S. election is looking to be a turning point in this regard. A victory by either candidate will cause unrest in its own way, while also shedding light on issues that have long lingered and are now demanding attention. These include corporate credit downgrades, a lack of private liquidity, underperforming hedge funds and massive budget deficits. The key driving point, however, will be a loss of confidence in the eroding dollar and the Fed’s need to restore it, most likely in the form of some kind of gold standard that would send gold to $3,000 in the short-term.

Look to inflation to continue the explosive price action seen in gold so far this year

Axel Merk, president and CEO of Merk Investments, is among the growing number of money managers who are prepared for more upwards price action in the gold market. In an interview with Kitco, Merk attributed a good part of his fund’s climb to $1 billion to a rise in interest in gold coming from all sides.

While the newfound affinity for gold among fund managers has been making the headlines, Merk singled out pension funds as perhaps the biggest clue as to where gold is headed. Pension fund managers, who were previously notably unwilling to have any exposure towards gold, are now changing their view and looking to move into the sector.

To Merk, this signals a paradigm shift, and one that is being spurred with good reason. The primary driver of gold’s gains should come in the form of inflation, as Merk notes that the recent multi-trillion dollar stimulus has reassured central bankers and lawmakers that they can print money out of thin air with no consequence.

Yet the consequence has already materialized in the form of a loss of confidence in the dollar, one that will be difficult to recapture given the prevalent trend of loose monetary policies. Gold’s correlation with stocks is just one example of pervasive investor concerns over the global economy, but Merk expects the two markets to become inversely correlated once again as equities plummet due to fundamentals that leave much to be desired. Furthermore, the money manager pointed out that the Federal Reserve’s commitment to low interest rates will continue pushing real rates downwards, creating yet another exceptional price driver for an asset that has already posted a new all-time high.

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