When you think of traders cornering a market, frozen orange juice futures and that 1983 American classic, "Trading Places" might spring to mind.
Randolph and Mortimer Duke Brothers are said to have been inspired by William and Nelson Bunker Hunt, the heirs to a billion-dollar Texas oil fortune. These brothers believed that inflation would turn silver into a haven just like gold, and predicted a 10-fold increase in the price of silver tied to a plummeting dollar.
So when their father died in 1974 and left them with piles of cash, the Hunt brothers started buying the metal both in physical form and through futures contracts. Once they spent all of their readily-available cash, they started borrowing to buy even more silver.
The Hunt brothers leveraged their father’s fortune several times over and ended up with 60% of the market, or about 195 million ounces of silver by the end of the 1970s. In 1979, as silver surged toward a record high near $50 per ounce, it drove people to sell off family tea sets for scrap, and prompted Tiffany & Co. (TIF) to take out a full-page ad in the New York Times condemning the brothers for causing the hike.
The Hunts owned so much silver that by January of 1980, for every $1 increase in the price of silver they gained $100 million in paper profit, which valued their stake at $9 billion.
The U.S. Government, of course, noticed that two men in Texas were hoarding the nation’s silver reserves and became concerned. Federal commodities regulators created special rules that suspended all long-position futures contracts for silver.
The Hunts were unable to buy silver, but people were still shorting it, and the metal began to slide in price. The Hunts had to pay millions per day on margin calls and in interest. This continued until March 27th 1980, better known as Silver Thursday, when the Hunt brothers were unable to meet a $100 million margin call and the price of silver came crashing down from $50.35 an ounce to $10.80.
The brothers lost $1.7 billion, prompting Bunker Hunt to remark that, “A billion dollars ain’t what it used to be.”
Federal Regulators and the banks were eventually forced into bailing out the Hunt brothers with a $1 billion line of credit in order to minimize the impact on financial markets.
But fear not - the Hunts bounced back. They went into their father’s business… oil. And Nelson Bunker Hunt passed away as a billionaire once more at the age of 88 on October 21st.
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