Will silver prices double?

Dubai - The silver bull market is no longer a springtime fantasy.

The last five years were brutal for silver bulls. After a post Nelson Bunker Hunt bubble peak price of 48.50 in April 2011, silver plunged to $13.60 by mid-December 2015 in a bear market that was even more extreme than the epic falls in gold and crude oil. Yet 2016 saw the silver bulls finally rock again as silver surges 20 per cent above $17.68 an ounce. The silver bull market is no longer a springtime fantasy. It is anchored in macroeconomics and the fundamental logic of the world precious metal markets.
One, there is no silver glut in the world. Most of the world's supply of the white metal does not even come from dedicated silver mines but is a by product of copper, gold and lead extraction. Given the savage bear market in both industrial metals and gold, less silver is mined in 2016 even as its industrial demand rises. Silver output will actually fall five per cent in 2016.
Two, Chinese investors are accumulating silver futures on both the Shanghai Futures Exchange and the London Metals Exchange. Beijing bought an incredible 345 metric tons of silver in the first three months of 2016 and Chinese reserves has now risen almost 180 per cent. China's fascination with silver goes back centuries. Even the Tang and Han dynasty emperors of the Middle Kingdom hoarded their imperial treasury with silver bullion and coins.
Three, it is still unattractive for silver producers to hedge their output. Unlike oil, there is no near term cap on silver prices.
Four, flows in the silver exchange traded funds have begun to rise and the holdings are now above 19,900 metric tonnes, just below the all time peak.
Five, silver bulls are increasing their long positions on the Chicago futures markets, a vote of non-confidence in the Yellen Fed's inflation fighting credentials. This is a dangerous omen of a future speculative bubble. After all, the Global X Silver Miner index fund (symbol SIL) has risen from 15 in mid January to 35 now. Something. This silver ETF was up three per centon Friday as Wall Street tanked after the Bank of Japan did squat on asset purchases. This is an amazing turnaround since spot silver fell 15 per cent in 2015. However, the Federal Reserve's successful attempt to talk down the US dollar and defer monetary tightening has led to a bull run in both gold and silver. Gold has risen a fabulous 19 per cent in 2016 as mediocre first quarter GDP growth in the US, Italy's debt woes and China's Ponzi scale credit bubble combine to trigger subliminal fears about stress in the international banking system. Easy money in Washington has led to $17.60 silver and $1268 gold.
Silver's epic boom and bust cycles are deeply etched in my psyche. As I was a schoolboy in Dubai, I saw a Pakistani gold wholesaler in the Deira souk make a fortune in the silver futures market as the price soared from $6 to $49 in the last four months of 1979 as Nelson Bunker Hunt, then Texas's richest oil magnate, tried to corner the silver market before the Volcker Fed devastated the biggest silver bubble in modern history via its monetary squeeze and change in margin rules "Beyond greed" taught me more about economics and investing than Keynes's General Theory or Von Hayek's Road to Serfdom.
As actual silver usage outstrips mine supply, I expect silver to rise at least $25 an ounce by end 2016. Silver scrap sales and Russian selling has also abated, the reason for the market's consistent strong bid since March. Global stockpiles of silver have now plummeted to only 20 million ounces, ten days of silver demand. It is entirely rational for owners of scrap silver to suspend sales, now at a 13 year low. The world's investment demand in silver has grown steadily after such recent shocks as Lehman's failure, the Greek sovereign debt crisis, Putin's invasion of Crimea, serial terrorist outrages and multiple civil wars in the Middle East. "Poor man's gold" is actually a far better store of wealth than paper money in a world where central banks compete to devalue currency.
Industrial demand for silver is at least 40 per cent of usage, in batteries, catalysts, medical devices, cell phones and solar cells etc. Industrial demand for silver is relatively price insensitive, as are bullion hoarders among the global tribe of silver bulls! The ghosts of Nelson Bunker Hunt and Paul Erdman, my boyhood heroes, would love to ride the silver El Torro in '16!