Goldman Sachs: Dump Dollars and Buy Silver
Peter Schiff has been warning about a dollar collapse and now the mainstream is even getting bearish on the dollar.
In response to the economic shutdowns imposed by governments to deal with the coronavirus pandemic, the Federal Reserve is printing money to infinity and beyond. On top of that, it has shifted its inflation targeting to allow inflation to run hot meaning there is no end in sight to the currency debasement. This is bearish for the dollar and an article published by Reuterslast month quoted a number of mainstream analysts talking about “dollar woes.”
Goldman Sachs has jumped on that bandwagon, saying in a recent report that “the risks are skewed toward dollar weakness.” Analysts see an increasing likelihood of a Biden victory in the upcoming election.
A ‘blue wave’ US election and favorable news on the vaccine timeline could return the trade-weighted dollar and DXY index to their 2018 lows.”
Goldman sees broad-based dollar weakness and recommended shorting the greenback against the Mexican peso, South African rand and Indian rupee. It is also advised buying the euro, along with both Canadian and Australian dollars against the US dollar.
During his speech at the Money Show in August, Peter Schiff said the government is trying to replace the economy with a money printing press and he warned that a dollar crisis is looming.
The dollar is going to fall through the floor and inflation is going to ravish the United States. What’s about to happen is that the world is going to go off the dollar standard and go back to the gold standard. That is where we are headed.”
Keep in mind, dollar weakness is also bullish for both gold and silver.
In a separate report, Goldman analyst Mikhail Sprogis said recommended buying silver. He said the white metal is “an obvious beneficiary” of the global move toward solar energy.
Silver is a vital component in the solar energy sector and solar power generation is expected to nearly double by 2025. A report by the Silver Institute earlier this year projected that a combination of global efforts to reduce fossil fuel reliance, legislation to lower carbon emissions, and favorable government tax policies, should result in a continued expansion of solar panel installations over the next decade. A recent report from the World Bank forecasts that by 2050, consumption of silver in energy technologies could grow dramatically, reaching a level equivalent to more than 50% of current total silver demand; the largest proportion for any non-battery metal.
“Now, with silver at $24/toz and a few potential upward solar surprises in the coming months, we reopen the trade,” Sprogis wrote.
According to the Goldman report, global solar installations are projected to rise by 50% between 2019 and 2023. But Sprogis said we could see “upward solar surprises” from that base-case scenario, including the US and China extending their solar installations plans. And if Biden wins, he has a plan to proceed with 500 million new solar panels in the US over the next five years. That could lead to a rise of 15% in global solar installations.
Silver is coming off its best quarter since 2010 and the fundamentals indicate there is still plenty of upside.
The silver-gold ratio remains high, indicating that silver is still historically undervalued compared to gold. After closing to under 70-1 in August, the spread has been running closer to 80-1 in recent weeks.
On the supply side, mine output fell precipitously with the COVID-19 economic lockdown. Many major mines were forced to shut down due to the pandemic. Analysts at the Silver Institute say they expect mine supply to continue its four-year slide. Even with most mines back online, the institute projects a 7% decline in mine output this year. Global mine production fell by 1.3% in 2019.
Looking at the big picture, the biggest driver for precious metals continues to be Federal Reserve monetary policy. In order to turn bearish on gold and silver, you have to believe the Federal Reserve is actually going to tighten monetary policy and the dollar is going to remain strong. Both of these prospects seem pretty implausible. Even the mainstream is starting to see it.