Silver has been a graveyard for investors since the Hunt brothers tried to corner the market for “poor man’s gold” 40 years ago, so when a big-name investment bank earlier this week forecast a 60% rise in the silver price most investors yawned.
Citi, which has a well-connected resources research team, has put its neck on the silver block in an advisory note with a tip that the price of the metal will rise to $40 an ounce over the next 12-months.
Silver is currently trading around $24.80 an ounce on the London bullion market, having already risen by 38% from $18/oz since the start of the year.
Citi’s case for silver is based on growing demand from investors who see silver as a cheap entry point into the world of precious metals dominated by gold, with a bonus of strong industrial demand.
But the bank doesn’t stop at a 605% silver rally. It also argues that there is a technical case for silver doubling $50/oz, and potentially rising four-fold to $100/oz.
Investors with memories that go back to 1980 will be wary of such optimistic forecasts because of the mess made of the silver market by three Texan oilmen, Nelson Bunker Hunt, Lamar Hunt and William Herbert Hunt who concocted a scheme to “corner” the silver market — which they almost did.
Unfortunately for the Hunt family and its bankers the scheme unraveled spectacularly when commodity exchanges tightened their rules on the use of debt to fund trades, causing the silver price to fall by 50% in four days, triggering panic on other markets.
So, when silver returns as a hot tip there are some market observers who wonder whether there is a risk of history repeating.
Citi is confident that’s not the case, describing the outlook for silver as “a mini re-run of the 2009-to-2011 bull market”, a time when silver rose from $11/oz to $48/oz before retreating.
“Silver is highly-leveraged to a global (economic) recovery, with relatively limited downside,” Citi said, before adding that “it’s not for the faint hearted”.