By Sybilla Gross

(Bloomberg) -- Silver will extend a rally beyond $40 an ounce in the coming months on tightening physical supplies and growing investment demand, according to Citigroup Inc., which reiterated a more cautious stance on gold.

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The three-month forecast was raised to $40 from $38, while the six-to-12 month outlook was boosted to $43, analysts including Max Layton said in a note. Gold’s outlook was unchanged, with the bank saying the peak may be in, and holding forecasts for a drop below $3,000 next year.

“We expect silver availability to tighten on consecutive years of deficit, sticky stockholders requiring higher prices to sell, and robust investment demand,” the analysts said. “The recent silver price rally is not just a catchup trade to gold but also a reflection of strong silver fundamentals.”

Precious metals have been among the strongest performers in commodities this year, with gold hitting a record and soaring by more than a quarter on central-bank buying and exchange-traded fund inflows, with the trade war spurring haven demand. Silver — valued as an industrial input, as well as a financial asset — has done even better in terms of year-to-date gains.

Silver will also advance “on the back of Fed cuts,” the Citi analysts said, referring to expected monetary-policy easing by the US Federal Reserve. “We continue to highlight our view that we may have seen gold price highs.”

Spot silver rose as much as 0.8% to top $38 an ounce, and is up by 31% this year. Gold was near $3,340 an ounce, 27% higher.

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