Why Citi says investors should stay away from silver

Citi’s taking cues from investor bets on silver, and right now, those bets are going against the white metal.

I haven’t been able to locate a copy of the research note that Citigroup Inc. (NYSE:C) sent to investors on Monday, but Marketwatch did. According to them, Citi’s taking a bearish stance on silver.

Indeed, the company expects silver bullion prices to fall 10 percent to $27 an ounce in 2013. They expect prices to stay roughly where they are in 2012 around $30 an ounce. Without getting our hands on a copy of the research note, it’s hard to say why they’re so bearish on silver, but we do have hints.

“The culmination of changes has resulted in a preference for base and precious metals over the bulk commodities,” the bank wrote (per Marketwatch). “Within these various commodities the conviction calls are in palladium, nickel, and gold on the bullish side and copper and silver on the bearish side.”

That means the bank’s taking cues from investor bets on silver, and right now, those bets are going against silver. There could be a lot of reasons for that. Citi specifically mentioned slower growth in China, which will dampen industrial demand for silver behind the great wall. In addition, there are several factors the bank didn’t mention: the dollar’s relatively strong, inflation’s in a downtrend and silver production is on the rise.

I wouldn’t count the white metal down and out yet, though. As Chris Poindexter points out at Townhall.com, the Fed can’t sit still on a strong dollar for long.

“The longer the dollar strengthens, the less competitive our exports become and that threatens the jobs recovery and feeds our massive trade deficit,” Poindexter writes. “It’s likely the Fed will be forced to consider additional easing. … I still expect gold and silver prices to recover somewhat this week but we won’t see any big moves until clearer guidance emerges on U.S. currency policy or some other news dumps us out of this narrow trading range.”

I agree. There just aren’t any major drivers for silver right now, and that means the fast money is looking elsewhere. It’s almost enough to make the contrarian in me start buying more silver. Right now, though, I’m more focused on mining. Stay tuned to our site for updates on the breakout we expect to see in gold and silver mining stocks.

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