It’s the most thrilling story in the history of precious metals…
A tale of high-rolling Texas tycoons, Middle Eastern princes, sharpshooting cowboys, and one hundred million ounces of silver.
In honor of silver’s big crash a few weeks ago, we decided it was time to revisit the infamous Hunt brothers debacle that completely crashed the silver market in the 1980s. If you aren’t familiar with the Hunt brothers, they were one of America’s richest families of all time…
Bunker and Herbert Hunt were the sons of Texas oil tycoon H.L. Hunt, the inspiration for the famous Dallas character J.R. Ewing. Legend has it that H.L. gambled his last $100 into a $100,000 and began building his fortune buying up oil fields with the winnings. Bunker followed in his fathers footsteps and eventually struck oil in Libya in 1961 — and struck it BIG. The find made him the wealthiest private individual in the entire world at the age of 35.
But in the 1970s, inflation began to skyrocket. Oil and food shortages, countrywide riots, and the Vietnam War began eroding the people’s trust in the government and the economy. And as the dollar lost more of its value, the Hunts’ oil profits began dropping along with it…
Since it was actually illegal for private citizens to hold gold at the time, the brothers targeted silver as the best available inflation hedge — and boy howdy, did they hit that target: They almost singlehandedly cornered the silver market.
While their silver investments may have began as a hedge against turmoil at home and abroad, the Hunts didn’t know the meaning of the word ‘subtle’ (they are rumored to have claimed that “deals under $100 million are for shoe clerks”). So in typical Hunt fashion, they went all in…
By 1973, Bunker Hunt had bought up 200,000 ounces of silver at around $1.50 an ounce.
Within a year, they had 55 million ounces of silver contracts — 8% of the world’s deliverable silver supply!
In order to keep it out of the hands of the U.S. government, they took delivery of the physical metal, and in a scene straight out of an old Wild West film, the Hunts hired a team of 12 sharpshooting cowboys to escort their precious metal to a safe hiding spot. These Circle K cowboys, as they were called, guarded three planes under the cover of night as a massive cache of 40 million ounces of silver was loaded up and hand-delivered to six locations in Switzerland.
But they weren’t done buying silver just yet…
The Hunts met with several Middle Eastern billionaires in an attempt to completely corner the market. At the height of the their hoarding, the brothers amassed a war chest of over $4.5 billion worth of silver — the equivalent of a whopping $44 billion today.
Silver prices skyrocketed to an all-time high of $50 an ounce, which was not popular with some folks with vested interests in the metal.
Walter Hoving, head of Tiffany & Co., even took out a newspaper ad denouncing the brothers for driving up the prices of his jewelery. Silver was so valuable that burglars installed furnaces inside their vans to melt down whatever they stole right then and there. “Photographic film was so expensive that a doctor called me to say he had to charge patients so much for x-rays he simply wasn’t taking all that he should,” Hoving said.
And while they may have rankled jewelers like Tiffany, they were also infuriating the bigwigs at the Commodities Futures Exchange Commission. The brothers were landing on all the wrong radars, including the Chairman of the Federal Reserve and the U.S. Treasury Secretary.
As it turned out, several members of the CFTC board of directors were silver shorts (a story for another time), which did not bode well for the Hunt brothers…
From Mike Maloney at Wealth Cycles:
The two major U.S. exchanges, COMEX and CBOT, started to panic: They held a measly 120 million ounces of silver between them, an amount typically delivered in a busy month. With silver prices pushing to new heights as new buyers rushed in, the exchanges became fearful that a default (inability to deliver) was imminent.
The silver rush continued to accelerate, led by the Hunt brothers and their Saudi Arabian business partners. The Commodity Futures Trading Commission (CFTC), the government’s futures watchdog, had become seriously alarmed at the prospects of a shortage on the exchanges, and tried persuading Bunker Hunt to sell some of his silver.
The billionaire resisted, believing that silver was a long-term play with an integral role in the future global economy. The CBOT, backed by the CFTC, finally decided to put a stop to the Hunt brothers’ buying — by changing its rules.
Margin requirements were suddenly raised, and traders could hold no more than 3 million ounces of silver futures; those holding more were placed in forced liquidation. Bunker Hunt cried foul, accusing exchange board members of having a financial interest in the markets — an accusation that would later be proven true.
On “Silver Thursday” (the white metal’s equivalent of Black Friday), silver opened at $15.80 and closed down at $10.80. The market crashed on speculation that the Hunts would have to sell off their stocks to cover their margin calls…
When the dust settled, they were out over a billion dollars.
Long story short, Bunker was charged with trying to corner the silver market, and he was on the hook to the IRS for $90 million. He subsequently filed for bankruptcy.
The Hunt brothers’ collapse makes the last few years of silver crashing look like a walk in the park…
After reaching record highs in 2011, silver has crashed almost 70%. But it looks like silver is finally coming out of its slumber…
Since the beginning of October, silver has clawed back to $16 an ounce.
Precious metals expert Michael Maloney, who I quoted above, believes that this is just the beginning of a historic rally in silver prices.
And he should know: he literally wrote the book on investing in silver.
His Guide to Investing in Gold and Silver is the best selling precious metals book of all time. We call it the “Silver Bible” around the office.
It is required reading for anyone who is invested in gold and silver, or plans to start investing while prices are as cheap as they are now. We love the book so much that we’ve made an exclusive deal with Mr. Maloney to provide Outsider Club members a free copy of the book.
You can claim yours here.
Godspeed,
Jimmy Mengel for Outsider Club
