Goldman Sachs has thrown some petrol on the silver fire, recommending investors dump the US dollar and buy the metal instead.
The reasons: one, a Democratic clean sweep at the 3 November election followed by massive spending programs that will hit the US dollar’s value and, two, a huge surge in solar panel demand for silver.
Goldman’s bullishness has now been followed by a note from Citi saying that silver’s price will hit US$40 per ounce over the next 12 months (compared with Thursday’s US$24.70/oz).
Citi even concedes that US$50/oz or US$100/oz are not out of the question in coming years.
However, Citi is not talking politics
It bases it view on expected increases in investor demand (on the precious side) and a rebound in global industrial activity.
Silver has been something to watch in recent months: in a bull phase outpacing gold, in the pullback phase again outpacing gold, but this time on the downward move.
But Goldman’s advice seems to have turned things around.
At the New York close on Thursday, silver over the past 30 days had risen by 1.33%, against gold’s 0.26%.
Gold-to-silver ratio has edged up again
That was a dramatic change from Monday’s close, with gold down 2.36% over 30 days and silver’s price declining by 8.89%.
Yet, measured by the gold-to-silver ratio, things are improving for silver but rather slowly: at Monday’s New York close the ratio was 1:78; at Thursday’s close it was 1:77.
In August the ratio managed to get down to 1:70 but has edged up a little of late.
But, for silver bugs, at least it is going in the right direction — just keep in mind that, in March this year, that ratio blew out to 1:124.
The silver sector does seem to have regained its equilibrium.
Exploration and mining for silver in Mexico, briefly disrupted by the COVID-19 pandemic, appears to be getting back into full swing to judge by the flow of announcements coming out of the Toronto exchange.
New products keep coming, among the latest silver coin issues being the Vatican’s €10 silver coin depicting “Mother Earth” and a 32 gram silver coin minted in Beijing commemorating China’s entry into the Korean War in 1950 and depicting its troops crossing the Yalu River into North Korea — perhaps not the most diplomatic silver coin issue of 2020 given current East Asia tensions.
Also taking advantage of the silver rebound was the US Mint.
Last week it raised prices on its silver coins.
The US Mint also clearly thinks investor demand for silver will remain strong, slapping on increases in some cases for the second time this year.
The Presidential Silver Medals will rise US$19 to US$65; the “America the Beautiful” 5oz uncirculated coin will go up US$50.75 to a new price of US$229; and the “End of World War II” 75th Anniversary 1oz coin gets price hike of US$29 to US$75.
And, according to the Silver Institute, silver bullion coin sales rose 65% over the first nine months of 2020.
Goldman’s ‘buy silver’ triggered by US election
Goldman argues that investors should underweight the US dollar and switch to silver positions due to the US election to be held on 3 November.
The polls are showing an increasing lead for Democratic candidate Joe Biden, the election of whom Goldman fears will send the greenback back to its 2018 lows.
The firm has great doubts about the two factors that could save the US dollar: the re-election of President Trump coupled with news on the coronavirus vaccine.
If the polls are right, Mr Trump is going to suffer a shattering defeat. And on Tuesday, the US reported 60,000 new cases of coronavirus infection.
Again, if the polls are right, then the Democratic party will control the White House, the Senate and the House of Representatives, and Goldman’s view is that the Democrats will unleash huge spending programs unimpeded by any opposition in Congress.
(Also, and one might say amazingly, Goldman is also recommending shorting the US dollar against the Mexican peso, the South African rand and the Indian rupee in the expectation of a Democratic clean sweep on Tuesday week.)
The weaker US dollar, of course, would boost precious metals’ appeal which have been struggling of late.
Massive solar boost could send silver demand soaring
Goldman analyst Mikhail Sprogis also made the point that solar panels represent about 18% of silver’s industrial consumption.
But that is only the start: the World Bank has previously forecast that solar will by 2050 consume half all silver produced.
Goldman is predicting that between 2019 and 2023, global solar installations will have increased by 50% over the 2018 level.
Mr Sprogis has also noted that, even with his forecasts, there could be “upward solar surprises”, particularly if China or the US extend their solar plans.
Mr Biden has promised, if elected, to initiate a US$2 trillion (A$2.8 trillion) move to renewable energy which would require 500 million additional solar panels over the next five years.
Yet the Silver Institute is expecting a 7% decline in mine supply this year, after a 1.3% fall in 2019.