A synopsis of the Hunt Brothers fiasco of 1980

[truthteller]

Some folks are posting stories on the PCGS forum about the rise of precious metals of 1980. Some of the posts are quite interesting, yet some posters gave out incorrect information. I hope this synopsis will clarify matters a bit. Anyone out there with some stories? I remember well BEFORE the collapse of lines of people selling anything gold or silver. One dealer literally had a line of folks stretching one full block waiting to sell. Even by 5PM, the lines didn't diminish. After the collapse, those lines quickly disappeared, and several dealers closed up shop.

 

 

 

 

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The Hunt Brothers and the Silver Bubble

Brian Trumbore

President/Editor, StocksandNews.com

 

 

In 1973, the Hunt family of Texas, possibly the richest family in America at the time, decided to buy precious metals as a hedge against inflation. Gold could not be held by private citizens at that time, so the Hunts began to buy silver in enormous quantity.

 

In 1979 the sons of patriarch H.L. Hunt, Nelson Bunker and William Herbert, together with some wealthy Arabs, formed a silver pool. In a short period of time they had amassed more than 200 million ounces of silver, equivalent to half the world's deliverable supply.

 

When the Hunt's had begun accumulating silver back in 1973 the price was in the $1.95 / ounce range. Early in '79, the price was about $5. Late '79 / early '80 the price was in the $50's, peaking at $54.

 

Once the silver market was cornered, outsiders joined the chase but a combination of changed trading rules on the New York Metals Market (COMEX) and the intervention of the Federal Reserve put an end to the game. The price began to slide, culminating in a 50% one-day decline on March 27, 1980 as the price plummeted from $21.62 to $10.80.

 

The collapse of the silver market meant countless losses for speculators. The Hunt brothers declared bankruptcy. By 1987 their liabilities had grown to nearly $2.5 billion against assets of $1.5 billion. In August of 1988 the Hunts were convicted of conspiring to manipulate the market.

 

One other experience in the silver bubble worth noting, according to author Edward Chancellor ("Devil Take the Hindmost"), is the experience of an official at the Peruvian Ministry of Commerce, employed to hedge his country's silver production, who lost $80 million by illicitly selling silver short. Said Chancellor, "Although a relatively small sum for a sovereign nation, it was an omen: the 'rogue trader' had appeared on the modern financial scene."

 

The stock market had its own troubles during the rise and fall of silver. The Dow Jones peaked on February 13, 1980 at 903.84. The day of the collapse, March 27th, the Dow closed at 759.98, a decline of 16% in just 6 weeks. [However, intraday, the loss between the 2/13 high of 918.17 and the 3/27 intraday low of 729.95 was actually 20%.]

 

For many traders the collapse in silver was the final straw for a stock market already under siege from worries as diverse as the Iranian hostage crisis, the Russian invasion of Afghanistan and soaring interest rates. [The consumer price index climbed at a 13% rate for 1979. The prime lending rate hit 22% in early 1980]. But by the year's end, the whole decline was almost forgotten. The Dow ended the year at 963.99, thanks in large part to the euphoria over the election of Ronald Reagan.

 

Sources:

"Devil Take the Hindmost," by Edward Chancellor;

"Profile of Power," by Richard Reeves;

"The American Century," by Harold Evans; Wall Street Journal article by Suzanne McGee;

"The Great Wave," by David Hackett Fischer.

 

Brian Trumbore

 

 

 

 

 

 

 

 

TRUTH

 

 

[cladking]

Thanks for the info. I hadn't remembered that anyone was convicted of conspiracy.

 

In this area there were no lines before mid-January. There were frequently several people waiting to sell silver, but no lines. The lines were mostly occuring after the first collapse and partial recovery to the $20 area until the second collapse in the spring.

[goose3]

thanks for posting. Up until now I had only heard bits and pieces of that story.

[Higashiyama]

Speculative bubbles are interesting cultural phenomena!

 

One thing I find interest about the Hunt bubble of 1980 is that market forces came to play quite quickly, and in the process, although many newcomers got burned, others, sensing a great sell opportunity, cashed in their family heirlooms at remarkable prices.

 

In the New York area, I remember reports of people coming in with bags full of sterling silver flatware, coins, tea services, and shops with this stuff just piled up behind the counter. The more reputable dealers were offering competitive prices, and were off course selling on the financial markets as soon as the tangible stuff came through the door.

 

(If anyone is an Updike fan, Updike's most famous character, Harry Angstrom gets into precious metals during the 1979-80 bubble in Rabbit is Rich.)

[PQSeated]

Didn't gold go up to $800 an ounce during this period also? What caused that to go up significantly?

[truthteller]

Gold peaked out about $850 oz in early 1980, but fell to mid $400 range a few weeks later, then recovered to mid $500 range for several months. This is an example of gold following silver, instead of visaversa, and gold was definitely not as plentiful as silver on the open market.

 

TRUTH

[keithdagen]

Interesting side note to this story:

 

My first job out of college was for Margaret Hunt, the older sister of the Hunt brothers. Our firm had considerable ties to all of the families, so many of the employees were there during the silver fiasco.

 

One guy tells a story that when the SEC and feds stepped in, real estate in Dallas was on a downswing, so to house all the investigators, the government purchased the building next door. The investigators would take paper in huge laundry baskets like hotels use and roll them next door so that they could be photocopyed.

[Count_Erfit]

Don't forget that the rules were changed by the Chicago Board of Trade as short sellers HAD no silver to meet the long calls. Sooooo......Prudential Bache threatened to dump treasuries to cover the shortfall.

Dumping treasuries in the 17-20% range they were in would have destroyed Wall Street and the dollar.

So limits were placed on silver BUYS.

 

In other words, the United States made buying a legal commodity a prohibited action. Nice country huh?

 

http://coin-shop.com/gold23.html

[Count_Erfit]

We lived through that in our first coin shop. We would come to work at 9:30, answer the first (ringing) phone call and then put the phone off the hook to take care of buying silver coins for the next 2-5 hours.

 

Crazy times.