Silver Thursday: The Infamous Collapse of Silver Prices
Silver Thursday, which occurred on March 27, 1980, marked a historic collapse in the price of silver. The Hunt brothers, heirs to a vast oil fortune, instigated this infamous event, and attempted to corner the silver market, leading to a rapid rise and fall in silver prices and eventual bankruptcy.
Basics
The Hunt brothers, Nelson Bunker Hunt, William Herbert Hunt, and Lamar Hunt, were the scions of a billionaire, Haroldson Lafayette Hunt Jr., who amassed his wealth in the oil market. They held a strong belief that fiat currencies were destined for severe devaluation, prompting them to seek protection for their wealth by acquiring substantial amounts of silver. Their aggressive purchasing spree led to a dramatic surge in silver prices from just over $6 per ounce to over $40 between 1979 and 1980.
The Precipitous Decline
However, in January 1980, the price of silver experienced a sudden and drastic decline of more than 50% in less than a week. This decline was, in part, triggered by new restrictions imposed on speculative margin traders. The Hunt brothers, despite their immense wealth, had heavily relied on margin loans to finance their silver acquisitions, exposing them to substantial losses. Rumors started circulating that they were facing margin calls from their brokerage lenders.
The Domino Effect
As is often the case during financial crises, rumors, and actual financial trouble led to a sentiment shift among investors. Silver, which had recently seen a ten-fold increase in value, now appeared to be in a downward spiral. At the height of their silver holdings, the Hunt brothers had amassed an astonishing one-third of the world's privately owned silver supply. However, as its value rapidly deteriorated, they found themselves needing help to meet the mounting margin calls from their brokers.
The Bailout and Investigation
Facing impending bankruptcy, the Hunt brothers received a lifeline in the form of a $1.1 billion bailout package. This rescue was swiftly followed by a formal investigation by the U.S. Securities and Exchange Commission (SEC) into their actions. Ultimately, the Hunt brothers declared bankruptcy after being fined a substantial $134 million in connection with their attempt to corner the silver market. Additionally, they were permanently banned from participating in commodities markets in the future.
Conclusion
The saga of Silver Thursday, on March 27, 1980, remains an indelible chapter in the history of financial markets. The ambitious attempt by the Hunt brothers to dominate the silver market led to a meteoric rise and a catastrophic fall in silver prices. Their financial misadventure resulted in their bankruptcy, a significant fine, and a permanent ban from commodities trading. While the silver market has experienced fluctuations over the years, Silver Thursday serves as a stark reminder of the perils of attempting to manipulate financial markets for personal gain.