By 1970, Bunker Hunt, one of the world’s wealthiest individuals, recognized the United States government’s failures in fiscal and monetary policy matters. Investors, including Bunker and brother Herbert Hunt, needed precious metals. Hunt was a staunch advocate for silver, believing in its promising fundamentals and considering silver undervalued compared to gold, especially in relation to its historic 16:1 ratio. The Hunts sought to invest their generational profits from the oil business in silver.
The Hunts bought and took physical ownership of thousands of silver bullion bars, as did many other individuals aware of the concept. Over about nine years, from 1970 to the end of 1978, it is estimated that the Hunts acquired about thirty-seven thousand 1000 oz silver bars at an inflation-adjusted value today of around $800 million, attesting to their long-term belief in monetary bullion, and not indicative of pump-and-dump Wall Street opportunists.
By the late 1970s, the U.S. government’s state of affairs was worsening – inflation was over 10% and rising, with fears of hyperinflation looming. Bunker Hunt feared the loss of his savings and further confiscation of bullion akin to the draconian executive order of 1933 confiscating gold bullion and coins. Hunt sought to acquire monetary bullion in a big way and store it in safer jurisdictions with a history of honoring private property rights and isolation from warfare, namely Switzerland. Of course, to many in our government, this was not a welcome thought. You’ve heard the phrase “too big to fail” concerning the 2008 bank bailout crisis intervention? Unfortunately for the Hunts, they failed to be “big” enough to succeed.
Besides the physical gold and silver metal that the Hunts had accumulated, they owned long silver futures contracts. Precious metals futures are contractual derivatives based on each party’s commitments to fulfill future obligations. If a position is not offset (liquidated) before the contract month settlement date, (1) the buyer fully pays for the underlying commodity, and (2) the seller/short side delivers it. The #2 party to those silver contracts is glossed over, except here. The Hunts wanted the metals and had the intention and capability to perform their obligation under the contract. However, for each long position in a futures market, the short counterparty agrees to be obligated to deliver.
The shorts were largely institutional investors and COMEX insiders, notably the bullion bank Mocatta Metals and insider Richard Jarecki. Jarecki gained notoriety for exploiting inconsistent roulette wheels in less advanced European casinos to the tune of over $1.2 million. After being ousted, he ventured into gold and silver trading in the mid-1970s. Institutional players, alongside commodity exchange insiders and individuals on the COMEX board (hint, hint), were heavily short and desperate for relief from their failing contracts on which they did not want to make good after prices skyrocketed.
In 1979, physical 1,000 oz silver bar prices rose from about $6,000 to $30,000, based on the London physical bullion market. The commodity exchanges increased margin requirements to slow ‘speculation.’ In essence, buyers on the other side of the futures contract – party #2, or the short, which was the purchasers of silver, on the other side of the contract of the short insiders. In October 1979, Herbert Hunt and others agreed not to take delivery of approaching February 1980 Silver contracts. Instead, they opted for May 1980 contracts, allowing the shorts to avoid fulfilling their delivery obligations.
On or about January 7, 1980, COMEX enacted new rules limiting the owners of silver contracts to holding and/or taking delivery of just 50 contracts in each of the January and February months and 500 contracts per month in the later months. These changes should have taken away all claims of Hunt’s so-called ‘cornering’ of the market. However, they failed to halt the free market price increase, further pressuring the shorts who were reluctant or unable to absorb their losses. By 1979, as explained by The Silver Institute: “Investors ceased selling their old silver holdings and instead began adding to their holdings. This added further upward pressure to the price of silver…in reality, there was a tremendously broad-based rush to buy silver by investors worldwide at the time.”
On or about January 21, the Chicago Board of Trade and COMEX decided to limit the contracts to liquidations only. This surprise rule crippled the investor side, allowing sell-outs only, and empowered the insider shorts. The rule lasted about two months.
From the end of 1979 to March 10th of 1980, silver prices per ounce ranged between $30 and $39, except for seven days in mid-January when they were above that. Enter the new Fed Chairman, Paul Volcker, and prudent monetary policies. On March 14, the Federal Reserve issued a directive restricting bank lending to reduce speculative credit. The Hunts, forced to look for loans from European banks, were under the thumb.
On March 6th, silver was $35 per ounce, but gold and silver prices subsided with evidence of the Fed’s prudent monetary behavior. Silver dropped below $20 in a week and a half. Though futures prices declined, the COMEX did not reduce its margin requirement, so the investors, the longs, had to pay greater portions of the silver, even though they did not get the bullion. The shorts had the longs cornered, who, without credit, were essentially kicked out. The abrupt liquidations caused greater harm to the silver market than other commodities, which likewise declined as the dollar was bolstered under Volcker.
The Hunts did not ‘cause’ silver to rise. In fact, according to gold, silver did not rise. [see gold to silver timeline below] Silver kept pace with gold and the dollar’s devaluation for a hundred years. The truth is that the Hunts did not ‘corner’ silver markets, nor the gold markets, oil, gas or any other commodities where prices rose. The Hunts did not cause the dollar’s value to decrease, which was and is caused by Federal administrations, though fingers need to be pointed elsewhere. The truth is straightforward – in the 1960s and 1970s, the dollar fell and all commodities flew higher as faith in the dollar plummeted, and real honest money, gold and silver were in the highest demand.
One may draw varied lessons from the Hunts’ ordeal and the stages of dollar devaluation in the 20th century, but there seems to be a clear benefit to owning physical silver bullion. Paper currency and paper trading contracts have undeniable limitations in the consistency of rules, exchangeability, and valuation. As such, holding title to physical silver appears to achieve solid, tangible, moveable wealth, which is unique in its nature.
Because 1000 oz silver bars are the most efficiently traded, they offer great flexibility in trading in and out of the market, converting to other forms of silver, or selling to acquire other investments. Contact a knowledgeable Account Representative today to invest in 1000 oz silver bars and explore alternatives, features, and benefits.
Credible Support of The Real Story by The Silver Institute
“By 1979, investors and other market participants had come to the strong conviction that the silver market was facing a severe shortage of metal, and that prices were likely to rise sharply at some point. The market had been living off of investor selling for seven years. Prices had risen from the beginning of the decade, but there were serious questions as to how much longer investors would be willing and able to continue supplying silver to fabricators, at least at the prices seen in the mid-1970s.
World economic and political events also were coming to bear on the silver market, most notably in the form of a major cyclical upward surge in inflation throughout the industrialized world. Sensing that silver prices should be adjusting upward to compensate for these inflationary trends, many investors decided that silver prices between $4.00 and $5.50, which had prevailed during most of the late 1970s, were too low. Investors ceased selling their old silver holdings, and instead began adding to their holdings. This added further upward pressure to the price of silver. Simplistic retrospectives of the silver market in late 1979 tend to focus on the high-profile purchases of large amounts of silver and silver futures by various wealthy individuals; in reality, there was a tremendously broad-based rush to buy silver by investors worldwide at the time. . . “
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