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Sell U.S. dollar, buy silver, says Goldman

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(Kitco News) Investors should look into selling the U.S. dollar and buying silver into the election, according to two new reports published by Goldman Sachs Group Inc.

There is a growing risk that the U.S. dollar will plunge to its 2018 lows as Democratic candidate Joe Biden continues to extend his lead in the polls prior to the election on November 3.

“The risks are skewed toward dollar weakness, and we see relatively low odds of the most dollar-positive outcome -- a win by Mr. Trump combined with a meaningful vaccine delay,” Goldman strategists said in a note on Friday. “A ‘blue wave’ U.S. election and favorable news on the vaccine timeline could return the trade-weighted dollar and DXY index to their 2018 lows.”

The U.S. dollar index (DXY) was last trading at 93.55, up 0.54% on the day. In comparison, the DXY dropped just below 89 in 2018.

A weaker U.S. dollar would be very positive for precious metals such as gold and silver, which have struggled to make new gains in October. December Comex gold futures were last trading at $1,894.40, down 1.79% on the day, and December silver was at $24.110, down 4.59% on the day.

Biden’s lead in the polls lowers the chance of a contested election, noted Goldman’s strategists. “The wide margin in current polls reduces the risk of a delayed election result, and the prospect for near-term vaccine breakthroughs may provide a backstop for risky assets,” they said.

Goldman advises shorting the U.S. dollar against the Mexican peso, South African rand, and Indian rupee. It is also advisable to buy the euro, Canadian dollar, and the Australian dollar against the greenback.

In another report, Goldman analyst Mikhail Sprogis highlighted silver as a buy due to the precious metal being an “obvious beneficiary” from a global move toward solar energy.

“Now, with silver at $24/toz and a few potential upward solar surprises in the coming months, we reopen the trade,” Sprogis said.

Earlier, Goldman has closed its long silver trade after silver surged 50% since March’s selloff and almost reached $30 an ounce in August.

Sprogis reminded investors that solar investment represents about 18% of silver’s industrial demand.

The base case scenario is that global solar installations rise by 50% between 2019 and 2023, according to Goldman.

The “upward solar surprises” Sprogis referred to include the U.S. and China extending their solar installations plans. Also, Biden’s plan to proceed with 500 million new solar panels in the U.S. in the next five years could see a rise of 15% in global solar installations, the note added.

If the U.S. and China go ahead with new solar installations plans, Goldman estimates a 9.3% advance to its $30 an ounce silver target.

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