Silver is set to benefit from a global solar energy drive and it is once again time to buy the precious metal, Goldman Sachs analysts said.
Silver stands out as an “obvious beneficiary” with global infrastructure stimulus tilting toward renewable energy, and solar in particular, Goldman analyst Mikhail Sprogis said in a note. Solar investment accounts for 18% or silver industrial demand or 10% or silver total demand, he added.
The investment bank initiated a long silver trade earlier this year before closing it out after silver prices surged 50%, briefly reaching its $30/toz target. “Now, with silver at $24/toz and a few potential upward solar surprises in the coming months, we reopen the trade,” Sprogis said.
Those upward solar surprises include both the U.S. and China stepping up plans for more solar installations.
The bank’s equity analysts said, in a base case scenario, global solar installations would increase by 50% between 2019 and 2023 as the trend toward green energy accelerates. But there are several upsides to what they described as an “ambitious target,” particularly if the U.S. and China pivot toward solar. Democratic presidential nominee Joe Biden’s plan to install 500 million solar panels in the U.S. in the next five years could boost global installations by 15%, they noted, while China could also increase installations in its new 5-year plan, representing a 40% boost to global solar installations.
However, solar companies are likely to continue to minimize the use of silver due to its high cost, subtracting 8% of silver demand a year over the next three years, Goldman Sachs estimated. Overall, solar will increase silver industrial demand by 2% over the next three years, or by 9% in a bull case, they said.
“While an acceleration in the trend of solar installations is clearly bullish, demand for silver as a safe-haven metal and to diversify from gold remains essential for a sustained bull market,” Sprogis said. If both Biden and China press ahead with solar policy, Goldman’s model points to a 9.3% boost to its $30/toz target, while positive solar news, such as a Biden victory could generate a rotation into the metal, the analysts added.
Barrons – By Callum Keown –