Silver Dreams Turned Dust: The Rise and Ruin of the Hunt Brothers
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The year was 1980.
Our family was visiting my grandmother in Cleveland for the weekend.
As we walked in, I saw her carefully collecting and weighing the family silverware on the dining room table.
Why this curious behavior?
She wanted to find out how wealthy she had become after a recent boom in silver prices.
Needless to say, the boom was followed by a massive bust.
Yet the Silver Thursday Crash of 1980 remains one of financial history's most unforgotten but dramatic episodes.
At the center of this saga were the Hunt brothers - Nelson Bunker Hunt and William Herbert Hunt - whose audacious attempt to corner the silver market led to yet another spectacular boom and bust cycle.
These heirs to a Texas oil fortune attempted to control the silver market, leading to a dramatic boom and bust cycle.
The Beginning of the Silver Boom
In the early 1970s, the Hunt brothers began accumulating silver. Their aim?
Protect their wealth from rampant inflation and profit from a potential increase in silver prices. They believed that the declining value of the U.S. dollar would drive silver prices up tenfold. Nelson Bunker Hunt was particularly optimistic about silver, viewing it as a safe haven during period of economic instability.
Their strategy was bold and straightforward. The Hunts used their inheritance to buy physical silver and futures contracts. Unlike most traders who settled futures contracts in cash, the Hunts took physical delivery of silver.
This strategy reduced the available supply in the market and allowed them to amass large quantities while driving up prices through continued buying.
Expansion and Market Impact
As their holdings grew, so did their ambitions. The Hunt brothers established companies in tax havens like the Bahamas, Bermuda, and Switzerland to cloak their activities. They also attracted wealthy investors from the Middle East and Brazil to join their silver-buying syndicate.
The impact soon became apparent. Silver prices began to soar, doubling in 1979 alone. This surge created a frenzy among investors. By 1980, the Hunts controlled up to two-thirds of the world's privately held silver, with their position valued at approximately $4.5 billion.
By way of comparison, Warren Buffett’s net worth at the time was about $100 million.
Their aggressive buying created a short squeeze in the market, putting pressure on traders who had bet against silver. These traders faced increasing losses as prices continued to climb. The Hunts used the 'silver straddle,' holding long and short positions to manage their tax liabilities.
Broader Economic Consequences
The Hunts' actions had an impact beyond the commodities market. As silver prices soared, industries reliant on the metal faced significant cost increases.
Doctors struggled with rising costs for X-ray film; families melted heirloom silverware for cash, and incidents of silver theft surged.
Tiffany & Co. published a full-page ad in the New York Times condemning the Hunts for hoarding billions of dollars worth of silver and artificially inflating prices.
The bubble peaked in January 1980 when silver hit an all-time high of $49.45 per ounce, up from just $6 per ounce at the start of 1979. However, this success sowed the seeds of their downfall.
Regulatory Intervention
Concerned about potential systemic risks, regulators and exchanges intervened. On January 7, 1980, the Commodity Futures Trading Commission (CFTC) and major exchanges like COMEX introduced new rules limiting how many silver futures contracts any single entity could hold and raising margin requirements.
These measures—particularly 'Silver Rule 7' adopted by COMEX—effectively prevented the Hunts from purchasing more silver. Sellers took control. As prices declined, the brothers faced mounting margin calls on their leveraged positions. Each $1 drop in silver's price meant an additional $20 million owed in margin.
The Collapse on Silver Thursday
The situation reached a critical point on March 27, 1980—Silver Thursday—when the Hunt brothers received a $100 million margin call they could not meet. Forced to liquidate their holdings rapidly, they triggered a cascade effect that caused silver prices to plummet from $21.62 to $10.80 per ounce—a staggering 50% drop within a single day.
Aftermath and Legal Repercussions
The immediate fallout was severe: What were once paper assets valued at $7 billion overnight turned into a $1.7 billion debt for the Hunts. The crash sent shockwaves through global financial systems, affecting silver and gold prices and stock markets worldwide.
The Hunt brothers were sued for market manipulation. They were charged with violating commodity laws and attempting to corner the market.
Each brother was fined $10 million and banned indefinitely from trading commodities markets again. Additionally, they paid over $134 million in civil damages related to losses incurred during this debacle.
Long-Term Implications
The Silver Thursday episode highlighted the dangers of excessive speculation and underscoresd the need for stronger oversight within commodity markets overall. The CFTC implemented new rules to limit speculative activities. It increased transparency requirements among large traders, who now must report positions regularly.
The consequences proved devastating for Nelson Bunker Hunt and William Herbert Hunt. Both declared bankruptcy and spent years unwinding the complex web surrounding their vast holdings.
A $1 billion bailout package allowed them to start anew and focus on more traditional business ventures instead.
The Silver Thursday crash remains one of financial history's most infamous episodes—a stark reminder of commodity markets' volatility and unpredictability.