Thursday, February 2, 2012

Cornering the Silver Market caused the Bunker Bubble to Burst

Silver ThursdayWhen the silver bubble burst.

Back in the 1970s, two billionaire brothers Herbert and Nelson “Bunker” Hunt came up with a plan to get super rich by cornering the silver market.

The brothers had inherited a fortune following the death of their father the oil tycoon Haroldson Lafayette "H.L." Hunt in 1974 and now decided to invest it in silver.

Their reasoning was that if they could corner the silver market, they would drive the price up. This plan was driven by Bunker’s belief in an impending apocalypse which would spell the end for paper money.

Nelson “Bunker" Hunt believed that the silver market would act in the same way as gold market and rise in value against other investments.

So the Hunt Brothers bought all the silver they could lay their hands on and stock piled it. They bought huge amounts of silver on the commodities market and physically took delivery of it, hoarding it in Swiss bank vaults and effectively removing it from circulation.

They then used their large cash reserves to buy up silver futures. They managed to trade on the futures market by using their family name as leverage and nobody questioned that they may be buying beyond their means.

As predicted by Bunker, the price of silver rose quickly, reaching more than $50 per oz. With their money already tied up in silver the brothers continued borrowing to buy more silver and silver futures.

At their height, the Hunt brothers were assessed at owning more than one third of the world’s supply of silver, around $4.5bn worth at the prices back then. This made it hard for other purchasers to obtain silver and Tiffany the New York jeweller actually took out an ad in the New York Times condemning their actions.

It could not last. . .

On January 7th 1980 the US Government stepped in and made changes to the rules on trading limits effectively stopping the brothers from operating.

Suddenly, everyone was panic selling, and on March 27, 1980, the price of silver bombed to under $11 an ounce. This day become known as Silver Thursday and for the brothers it was distasterous. They were forced to sell and took $2 bn losses in one day.

The Hunt brothers had to face congress and they were publicly vilified.

They were fined and charged with market manipulation and forced into bankruptcy. Once known as two of the world’s richest men, it took nearly 10 years to unravel their silver holdings and satisfy their creditors and it left them billions of dollars poorer.

Ultimately, Bunker Hunt withdrew from public life and started a new life breeding racehorses, at which he has been successful. He has been helped by a $200 million trust fund set up by his father HL Hunt that could not be touched by the bankruptcy order.

Today the Hunt family remain influential and the company is are one of the largest privately held companies in the United States dealing in oil, energy, real estate, investments, ranching and infrastructure.

They are believed to be the family that the TV series Dallas was based on.

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