Our Friday Fables blog has been telling you fun tales about precious metals for some time now. These stories are usually legends or myths involving hidden treasure and the like. But today’s post is the true story of the Hunt Brothers and how they tried to corner the silver market, nearly collapsing the country’s financial system.
H.L. Hunt was the type of man to go all in when it came to investing. He used poker winnings to buy a 5,000 acre oil field in Texas for $30,000 (which is about $427,000 today). It turned out to be the largest pool of US oil outside of Alaska. Five years later, Hunt was worth roughly $100 million ($1.7 billion today).
After becoming one of the richest men in the world, Hunt died in 1974. His fifteen children inherited his fortune. Two of his sons, Bunker and Herbert, decided to turn their huge chunk of cash into an ever larger sum. They shared their father’s penchant for gambling, conservative political views, and a belief that the government was evil and conspiracizing to steal their wealth.
Inflation was at a whopping 14 percent in the mid-70s, and the two brothers saw their fortune being eaten away. They feared the viability of fiat money, so they turned to tangible assets. However, private US citizens were not permitted to buy gold at the time. The Hunts settled on silver as their safety net.
In 1973, Bunker and Herbert bought over 35 million ounces of silver collectively. The next year, they accumulated futures contracts for 55 million ounces of silver, which was about nine percent of the world’s silver supply. Futures contracts provide the owner with the right to buy a commodity at an agreed-upon price on an agreed-upon date in the future. Most future traders sell their contracts before the agreed-upon date rather than taking delivery of the actual commodity.
In the case of the Hunt brothers, accepting 55 million ounces of silver would be a logistical nightmare. But they did it anyway. They worried that the government would confiscate the metal because of what happened with gold in 1933. Instead of keeping it at home, they chartered jets to fly the silver to Switzerland under armed guard for safekeeping.
In 1977, the Hunt brothers entered the futures market for soybeans because of rising demand. They ended up purchasing futures for one-third of the entire US soybean supply. Some believed the Hunts were attempting to corner the soybean market, which would create an artificial shortage and drive up prices.The Commodity Futures Trading Commission discovered that a single Texas family had contracted to buy a huge portion of the year’s soybean crop and ordered them to sell and pay a penalty of $500,000. But they had already made tens of millions on paper while soybean prices increased.
In 1979, the brothers turned back to silver, buying over 43 million ounces in contracts with delivery to be taken in the fall. Before the delivery date, the price of silver per ounce doubled from $8 to $16 in just eight weeks. Other traders started buying as well, sending commodity exchanges that traded silver into a panic. More silver was being traded on paper than there was physical silver to cover deliveries. This also led to problems with companies that made industrial use of the white metal. Later that year, the exchanges instated a rule that permitted investors to hold no more than three million ounces of silver contracts, and larger contracts must be sold by February 1980 to be brought into compliance.
The brothers didn’t trust the government or regulators, so instead of complying, they bought more futures worth 32 million ounces of silver for over $500 million. At that point, the Hunts controlled about 77 percent of all privately owned silver. Prices reached an all-time high of $50.50 per ounce in January 1980. As prices soared, people were scrounging silver out of their drawers and sofa cushions to sell. Police even issued a warning about a string of home burglaries targeting silver. Whether intentional or not, the Hunt brothers created one the biggest bubbles in the history of financial markets.
Shortly after, the commodity exchanges and the US government suspended the issue of new silver futures, only allowing investors to square up old contracts. This caused the price of silver to plummet down to $34 per ounce. The chairman of the Fed made a move to control inflation by ordering banks to curtail their loans for “speculative holdings of commodities or precious metals.” The Hunts, who had borrowed money to buy silver contracts, could no longer get loans.
In March 1980, the Hunts received a $135 million margin call from the various banks and firms that backed them, suddenly requiring more collateral for their debts. The brothers could not afford to pay it. The Bache Group, their brokerage firm, started selling their silver to meet it, which caused silver prices to fall once again to $11 per ounce. The government bailed out Bache to avert a national financial crisis.
The brothers were eventually convicted of market manipulation and fined heavily. A series of lawsuits and government penalties ate up the Hunts’ fortune. Over 20 financial institutions had given over a billion dollars in credit to the brothers. A bailout loan was required for them to start paying off those debts.
A New York City jury found the Hunts guilty of deliberately conspiring to corner the silver market. However, there are still some who disagree on this. There are those who believe that the brothers simply desired silver for its enduring value. Others think the brothers had no clue what they were doing the entire time, saying that perhaps they had more money than sense.
They fell into bankruptcy in 1988 and it took over a decade for them to settle with creditors. By the end of the ordeal, they wound up billions poorer than before they started buying silver; though they were still considered wealthy by most standards.
Until Bunker died in 2014, he denied that he and his brother plotted to corner the silver market. The price of silver is now approximately where it was when the Hunts began buying and the dollar still hasn’t collapsed. Herbert is still alive and retains a net worth of $2 billion.
Perhaps buying silver in such extreme bulk is not a wise move, but many still enjoy buying silver in reasonable amounts. If you’re one of these people, you might like the Provident Metals 5 oz Silver Bar. Bars are easy to collect, stack, and store.
Do you know of any other stories, tales, or legends involving precious metals? We just might feature it in our next Friday Fables blog!
Bullwinkle says
> The price of silver is now approximately where it was when the Hunts began buying
So from 1973 to 2017, investing in silver has yielded 0% return?! Is that a message Provident really wants to make public? 😉
So even at the peak of this saga, silver was only $50.50/oz. Glad I didn’t open that precious metals IRA after all.
Anyway, it sounds to me like the Hunt brothers were correct… the government can’t be trusted, it conspired to seize their fortune, and the story reinforces the well known fact that when something doesn’t go the government’s (or exchange commission’s) way they just change the rules in order to rob you into submission… or send the IRS after you… or declare eminent domain… or declare certain articles of private property banned from public ownership and confiscate it w/o fair compensation. Nothing robs a citizenry of its wealth more than its own government!
Mojojojo103 says
Ah the good old days–when I was about 20 years old I made my first real investment in silver. It was 1980 and the price of silver was increasing faster than anyone could imagine.
Everyone was talking about silver going to 100 or even 1000 dollars an ounce over the following year and people were moving to the country to get ready for the end of the world as we know it. Seriously–it was the early days of prepping but we just called it camping back then… The Hunt brothers were in the business news quite a lot back then–but I don’t think anyone really understood what they were doing including themselves.
Having no experience with investing and thinking I could double my money in no time I took all my savings–about $1100 at the time and bought a bag of constitutional silver from a local bullion dealer. That was about the only way for a retail investor to get their hands on some back then.
I mean I was only getting 8% interest in my local savings account with my bank and nobody thought the dollar would be worth anything soon. Who would settle for that when you could double your money in no time just holding onto a big bag of silver coins. Worst case I figured I could spend the coins for face value, right? I mean home loan interest rates were 12-17% back then depending on your credit rating best to worst so who could afford to buy property–that was so far out of my reach I never considered it a possibility.
Well as you might guess I did not double my money and ended up losing nearly half my investment because the top was in and the price was falling like a rock and I did not have the stomach to hang on. That was probably the best lesson I ever learned because it taught me about risk and understanding all that glitters is not gold!
Those were exciting times–however, there were many more events to come, the 87 stock market crash, the 2000 dot com bomb, the 2007 housing bubble, and now? Who knows? I guess some people are still thinking paper money may not be worth anything soon?
But in hindsight that was one for the record books–I can say having been there it really got people excited about owning silver at the time. Seems some things never change.
Even after all these years I still get giddy about owning a little silver and taking it out to clink it around. If only there was YouTube back then–all we had was Pong and Donkey Kong!
10 year silver price history around 1980:.
1988 7.8270 5.9980 6.5335
1987 9.6600 5.3790 7.0198
1986 6.2850 4.8540 5.4653
1985 6.8350 5.5250 6.1459
1984 10.0640 6.2950 8.1585
1983 14.7150 8.4000 11.4340
1982 11.2100 4.9800 7.9311
1981 16.2900 7.9850 10.5014
1980 48.7000 10.8000 20.6568
1979 34.4500 5.9230 11.1135
1978 6.3170 4.8110 5.4068
Now what if I had invested that $1100 in an S&P 500 index fund in 1980 with dividends re-invested. See below for inflation adjusted returns from Jan 1980 to Jan 2017.
Total S&P 500 Return 553%
Annualized S&P 500 Return 5.2 %
Total S&P 500 Return (Dividends Reinvested) 1642%
Annualized S&P 500 Return (Dividends Reinvested) 8.03%
Silver is still cool! But still no way to take an index fund out of a box and clink it around like a handful of silver dollars! Maybe someday someone will make a market out of silver S&P 500 rounds backed by some government or otherwise but I would not hold your breath.
ProvidentMetals.com says
How interesting to hear about your personal experiences during the 80s silver boom! Thanks for sharing.
Donald says
We can all learn from the Hunt Brothers Experience Number one take possession if you don’t hold it you don’t own it. Number 2 no counterparty risk Number3 Don’t Use leverage Number 4 stay out of their markets the out their regulations stay out of their banking systems they are their political system stay out of their media Number 5 don’t expect a fair fight
ProvidentMetals.com says
There is definitely quite a bit to learn about what happened with the Hunt brothers.
Papikink says
Great story. Thanks for the information!!
ProvidentMetals.com says
Glad you enjoyed it!
J.H. says
Well written, very entertaining. A very interesting account on two men who did not know when to stop. Of course they knew what they were doing. The Hunt brothers denying their move to corner silver is like Bernie Madoff denying he was running a Ponzi scheme.
Over 20 financial institutions had given over a billion dollars (in the 70’s) in credit to the brothers; and they be like “Oh, no, no, no, we had no idea people would think we’d try to corner anything!”
lol.
and finally . . .
“More silver was being traded on paper than there was physical silver to cover deliveries.” Yeah! Just like in 2017!
ProvidentMetals.com says
Glad you enjoyed the story! These Friday blogs are always fun to write.