silver

Nelson Bunker Hunt passed away this morning at the age of 88 after a battle with Alzheimers disease. Nelson and his brother  W. Hebert Hunt are famous for trying to corner the silver market back in 1980. The Hunt brothers managed to drive the price of silver to a record high of $49.45 per ounce on January 18 that year before an epic collapse. Even today, investing in silver appears to be just as good of an idea as it was for the Hunt brothers all those years ago.

Nelson and his brother inherited a billion dollar oil fortune from their father  H.L Hunt. Nelson tried to add to the family’s oil legacy by investing in a Libyan oil field, only to have it nationalized by Muammar Gadhafi.

The brothers began buying silver in the early 70’s at $1.50 per ounce and by 1980 they held ~$4.5 billion worth of silver.  As word got out that the brothers were buying demand picked up, causing a spike in silver prices. The brothers were relentless and continued to borrow money against their oil holding to buy more.

The collapse of silver in March 1980 led to billions of  dollars in losses and Nelson ended up declaring bankruptcy in 1988.

Silver historical chart (Image goldprice.org)

Silver historical chart (Image goldprice.org)

At one point the Commodity Futures Trading Commission (CFTC) estimated that the Hunts and their Saudi allies controlled 77% of the entire silver market. Obviously something had to be done quickly, so the CFTC banned all silver purchases in March 1980, only allowing liquidation.

This ban caused the price of silvered to plummet and the brothers experienced a $2 billion dollar loss. The Hunt brothers were over leveraged and the margin calls began to come in.

In addition, on March 17, 1980 US Federal Reserve head Paul Volcker announced a new rule that ordered US banks to curtail loans by instituting special credit restraints programs. Banks would no longer make loans that applied to financing of speculative holdings of commodities of precious metals. This new rule essentially did the Hunt brothers in.

Margin calls poured in and word quickly spread that the Hunt brothers were in big trouble with no option left but to sell their physical silver. The silver market responded by dropping from $20.12 on Tuesday March 25th to close at $12 on Friday.

In 1988 the brothers were convicted of “conspiring to manipulate the market”. The punishment was a lifetime ban for trading commodities and a $10 million dollar fine for each of them.

Hunt and his wife, Caroline, with whom he had four children, lived their later years in a relatively modest house in Dallas.

READ: The Hunt Brothers: How they Did It and What we Can Learn From it