Citi is "very bullish" on silver, these are the ASX silver stocks to watch

In a commodities-based research report released over the weekend, major broker Citi has issued substantially bullish commentary on silver. The timing could not be better, considering silver prices have just begun to move again after stagnating since a June peak. Since that peak, silver has notably lagged behind gold, as that precious metal has made a string of record highs.

In this article, we investigate how much upside Citi sees ahead for what is considered by many to be “the other” precious metal, the rationale behind the broker’s call, as well as the key ASX listed silver plays we think investors should know about.

A “momentous period”

Citi has just released its fourth quarter 2024 Commodities Market Outlook, titled “The stars align for precious metals while oil markets settle in a lower range”. The opening paragraph labels the final quarter of this year as a potentially “momentous period” for the global economy, and therefore for asset markets and “commodity markets in particular”.

There will be substantial trading opportunities for investors over the next few months if they know where to look, Citi suggests. The broker highlights the following key opportunity/risk catalysts:

• The commencement of a Federal Reserve interest rate cutting cycle
• Continued weakness in the Chinese economy (albeit against the backdrop of this country’s continued rapid energy transition)
• Growing overcapacity at OPEC+ producers
• The US election (tariffs and foreign policy differences are key catalysts here)
• The prospect of Russian commodity supply disruptions

Silver second to gold no more!

In Citi’s report, they “reiterate and emphasise” their “very bullish and high conviction” view on silver. The silver price is about to move very quickly, the broker suggests, from the current US$31.20/oz to US$35/oz by the end of the year, and then to US$38/oz over the next 6–12 months.

This implies approximately 12% upside in the silver price in the short term, and nearly 22% upside in the medium-to-long-term. There are several reasons why Citi is so bullish on silver:

• China #1: The country’s energy transition is hoovering up huge amounts of silver, as silver is a key component in solar panels which the country has prioritised as a green energy generation source

• China #2: Chinese investors are also showing strong demand for silver as a store of value and as an alternative investment to the country’s faltering property market (the country has also been prominent in gold purchases for this same reason)

• Demand-Supply Dynamics: “The silver market has a large ongoing underlying deficit which requires ~1% of total bar and coin stockholders to sell each month to balance the market”, notes Citi. The broker believes the deficit could be as much as 20% of total global consumption. Existing silver stockholders will only be enticed to offload “at higher and higher prices”, says Citi.

• Fed Cutting Cycle: Lower interest rates typically support prices of precious metals as these assets don’t have a yield and they can be expensive to store and insure. This means the opportunity cost of holding precious metals declines as interest rates decline, making them more attractive to own. Also, fears of central bank money printing to stimulate a slowing global economy, and as a result, potential fiat currency debasement, usually increase during interest rate cutting cycles. As a result of these factors, Citi expects “ETF and fund futures buying very likely to rise sharply over the next 6 months”.

Don’t worry gold bugs, Citi is also still bullish on gold, but less emphatically so. The broker sees gold trading between US$2,800-US$3,000/oz over the next 12 months, offering around 7-15% upside versus the current price of US$2,610/oz.

ASX silver companies to watch

Here’s a list of several ASX silver stocks to keep an eye on. You may wish to reference this article which discusses several more for further details.

Adriatic Metals (ASX: ADT)

This article first appeared on Market Index on Monday 16 September 2024.