In 1973, the Hunt family of Texas, possibly the richest family in America at the time, decided to buy precious metals as a hedge against inflation. Gold could not be held by private citizens at that time, so the Hunts began to buy silver in enormous quantity.
In 1979 the sons of patriarch H.L. Hunt, Nelson Bunker and William Herbert, together with some wealthy Arabs, formed a silver pool. In a short period of time they had amassed more than 200 million ounces of silver, equivalent to half the world’s deliverable supply.
When the Hunt’s had begun accumulating silver back in 1973 the price was in the $1.95 / ounce range. Early in ‘79, the price was about $5. Late ‘79 / early ‘80 the price was in the $50’s, peaking at $54.
Once the silver market was cornered, outsiders joined the chase but a combination of changed trading rules were imposed arbitrarily to prevent further buying of silver by the Hunts or anyone other than legitimate industrial users and shorts who were buying back silver they had previously sold. The Hunts were trapped; they could not buy, and there was no one to sell to.
The final body blow to the Hunt brothers came from an intervention by the Federal Reserve, which put an end to their game. A policy of “special credit restraint” was announced, under which member banks were advised in no uncertain terms to cease providing loans to finance speculative activity. The price of silver began to slide, culminating in a 50% one-day decline on March 27, 1980 as the price plummeted from $21.62 to $10.80.
The collapse of the silver market meant countless losses for speculators. The Hunt brothers declared bankruptcy. By 1987 their liabilities had grown to nearly $2.5 billion against assets of $1.5 billion. In August of 1988 the Hunts were convicted of conspiring to manipulate the market.
The stock market had its own troubles during the rise and fall of silver. The Dow Jones peaked on February 13, 1980 at 903.84. The day of the collapse, March 27th, the Dow closed at 759.98, a decline of 16% in just 6 weeks. [However, intraday, the loss between the 2/13 high of 918.17 and the 3/27 intraday low of 729.95 was actually 20%.]
For many traders the collapse in silver was the final straw for a stock market already under siege from worries as diverse as the Iranian hostage crisis, the Russian invasion of Afghanistan and soaring interest rates. [The consumer price index climbed at a 13% rate for 1979. The prime lending rate hit 22% in early 1980]. But by the year’s end, the whole decline was almost forgotten. The Dow ended the year at 963.99, thanks in large part to the euphoria over the election of Ronald Reagan.
Oil Price Boom and Crash: Another Hunt effect in the Making!
In 1980, the Hunt brothers cornered the silver market, causing an epic price spike and then a bust. Crude oil is close to $135 a barrel today. Is something similar at work?
The US Congress held a hearing on market manipulation in Washington yesterday, it seems the US congress suspects there is more to oil price than just increasing consumption.
Many in the sector believe that the big institutions that have entered in recent years are “accidental Hunt brothers”.
Investment in indices based on commodity futures have risen from $13 billion five years ago to $260 billion now, that’s a 2000 percent increase. The rise in investors’ demand for oil futures is more of a speculative demand than any hedging against the commodity.
Historically, futures markets are |
