by Mike Maloney Market Oracle
It began with a shoot-out at the Circle K Ranch. The 12 best marksmen would ride shotgun as the world’s largest, privately owned stockpile of silver was secretly transferred into secure vaults.
No, this wasn’t a shipment from Nevada’s Comstock Lode to San Francisco in the Wild West of the 1870s. This was the 1970s, and the precious metal was being moved from New York to Switzerland.
Shining silver under a moonlit sky, three unmarked 707s waited at LaGuardia Airport. The Circle K cowboys stood guard, shotguns in hand. 40 million ounces of bullion – amassed by Nelson Bunker and William Herbert Hunt – were loaded in, and the planes took off under cover of darkness to their secret destination…
Millions of people have heard the “official” story of how the larger-than-life Hunt brothers drove the price of silver from under $2 an ounce to over $50 in an attempt to corner the market. At one point, the two colorful Texas oilmen owned the rights to more than half the world’s silver supply. But then it all came crashing down on Silver Thursday, March 27, 1980, when silver fell to under $11 an ounce. Instead of making billions, the richest men in America ended up losing the bulk of their family’s fortune.
The Hunt Brothers – Sacrificial Lambs in Wolf’s Clothing
I’ve been studying the Hunt Brothers, and I have a different take on what really happened. Because of the way they flaunted their wealth, because of ties they had to the Middle East, and because they did invest so heavily in silver, the Hunt brothers were the perfect scapegoats for the anger and frustration most Americans felt towards the lagging economy of the day.
I believe that Bunker and his brother were used by the Federal Reserve, in collusion with COMEX and the Chicago Board of Trade (CBOT), to cap the price of gold – YES, GOLD – and save the U.S. dollar.
The period leading up to silver’s spike was fraught with inflation, stagnant economic growth, and political upheaval. In 1965, President Johnson increased deficit spending to finance his Great Society programs, tax cuts, and an unpopular war in Vietnam.
In 1971, realizing that the U.S. Treasury didn’t have enough gold to redeem all the dollars held by foreign governments and investors, President Nixon pulled the United States off the Bretton Woods monetary system – the last vestiges of a pseudo gold standard. This action effectively created a worldwide fiat currency system that continues to this day.
OPEC-generated oil shortages, along with real food shortages, fueled public fears that the U.S. economy was in crisis. By the late 1970s, inflation had become public enemy number one.
The Hunt for Silver
The Hunt brothers could see the writing on the wall. With their great wealth being steadily eroded by skyrocketing inflation, they needed an asset to which they could safely anchor their massive oil fortune. At first, they thought of gold – history’s safe haven. But in 1973, U.S. citizens were not allowed to own gold, and Bunker Hunt thought the gold market was too easily manipulated for government purposes.
So the Hunt Brothers turned to silver, and started buying it at about $2 an ounce. Total world silver production was dropping, while industrial silver consumption was exploding. And once government and private silver stocks ran out, the shortfall between supply and demand was certain to drive the price of silver skyward.
By early 1974, the Hunt brothers had purchased futures contracts (agreements to purchase commodities in the future at a pre-determined price) for another fifty-five million ounces of silver. This was on top of the massive hoard of physical silver they already owned. In April, Bunker Hunt stopped in New York to visit the COMEX trading floor for the first time. When he walked onto the floor, the normal frenzy of activity came to a screeching halt. Who was this fat Texan in thick plastic glasses and a cheap blue suit? Rumors began floating that the Hunt brothers were attempting to corner the market.
Those who believe that the Hunt brothers were out to corner the silver market point to Bunker and Herbert’s huge appetite for silver futures as proof that they were trying to manipulate prices. I see it a different way.
The Hunt brothers used their positions in silver futures to acquire more of the physical metal. Aware that cash was continually losing value due to inflation, they settled their futures contracts with physical delivery of bullion, instead of cash, as a hedge against the government currency monopoly and global turmoil.
I believe that the Hunt brothers were more concerned about long-term survival and preservation of their family’s wealth than they were with short-term speculative profits. That would merely have added a few more paper dollars to their vast sums of rapidly depreciating currency. Bunker Hunt was well versed in Germany’s disastrous hyperinflation of the early 1920s, and he was genuinely concerned about going broke holding paper assets.
In an interview with Barron’s financial magazine, Bunker kept quiet about his silver investments. But he made no secret of his distaste for the dollar: ‘‘Just about anything you buy, rather than paper, is better,” he said. “…If you don’t like gold, use silver, or diamonds or copper, but something. Any damn fool can run a printing press.”
If You’re Losing, Change the Rules
By October 3, 1979, silver hit $17.88 an ounce. 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.5 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.