Why Could Silver Still Rally Another 18%?

“TOPLINE Precious metals have shot up in value this year as the dollar—marred by economic uncertainty and improving growth abroad—falls from two-decade highs minted late last year, and analysts project the strength for silver prices in particular could continue over the next year, which is only expected to bring about further strains on the world’s reserve currency.

KEY FACTS
The price of silver has surged nearly 20% in the past month to some $25.31 per ounce—eclipsing the S&P 500’s roughly 5% gain over the same period, as well as outsize gains for other precious metals, including gold (up 9%), platinum (10%) and palladium (12%).

The boost to precious metals has come as the value of the dollar, relative to foreign currencies, has struggled—falling about 2% over the past month and more than 9% since a 20-year peak in September.

Dollar weakness traditionally bodes well for industrial commodities (and roughly half of silver’s demand is industrial) because they are traded in dollars—so as the dollar declines, they become cheaper for non-U.S.-based buyers, explains Nigel Green, the CEO of wealth advisory deVere Group.

“Precious metals and especially silver [have] near-perfect conditions for the ongoing bull market,” Citi analysts, led by Maximilian Layton, wrote in a recent note, projecting prices could surge another 18% to $30 per ounce in the coming months.

The team believes the dollar has more room to fall as uncertainty over interest rates continues throughout the year, making a surge to $34 per ounce a “distinct possibility” over the next 6 to 12 months.

SURPRISING FACT
Economic uncertainty has been a notably big boon for precious metals in the past—but not without volatility. Silver prices shot up some 400% in the three years after the Great Recession, though they then collapsed about 70% in the following four years.

KEY BACKGROUND
Buoyed by demand for safe-haven assets as the Federal Reserve started raising interest rates last year, the U.S. dollar index, which tracks the price of the dollar against six foreign currencies, surged as much as 20% through October. However, mounting uncertainty has since pushed the value down. “Improving European growth, a potential U.S. recession and China’s reopening are all putting the squeeze on the greenback,” explains Green, also noting the banking crisis put a further strain on the dollar last month. “It’s a perfect storm that will lead to the dollar being one of the biggest losers of 2023.”

CONTRA
Not everyone’s as bullish: In a report last week, Schroders investment chief Johanna Kyrklund said she recognizes that weakening growth and easing inflationary pressures should support precious metal prices, but she suggested recent gains may give way to temporary weakness, saying she “prefers to wait for better levels” before deciding to buy.”