Silver Thursday

Silver Thursday and the Hunt Brothers come to mind given the sudden spurt in the silver price. Over the last couple of weeks the metal has been playing catch up with its richer gilded cousin. Is the silver market still small enough for a rich megalomaniac to manipulate? 

It is forty years ago since Silver Thursday on the 27th March, 1980 when a buccaneering attempt to corner the silver market bankrupted Bunker Hunt. History is far more compelling than the most effervescent conjecture.

In the round the total value of silver above ground at today’ s silver price is somewhere around US$61 billion. That amount is equal to the net worth of Sergey Brin co-founder of Google. It is not much larger than the market capitalization of Newmont Corporation. The world’s biggest gold mining company has a market capitalisation of US$55 billion. The silver market compared to gold market is very, very small. The silver market is still small enough for a Bill Gates, Mark Zuckerberg, Jeff Bezos or an Elon Musk to chew and spit out if the Feds were in a permissive or laissez faire mood. 

The value of gold above ground and hoarded back underground in vaults is about 250 times more than silver.[1]. The silver price has a higher Beta than the gold price because the silver market is two orders of magnitude smaller than the gold market. The gold market is simply too big to manipulate despite the conspiracy theories. 

The historic value of gold to silver can stay out of kilter for a long time and has been above 100:1 in recent times. When investor sentiment swings to silver then the price impact is much greater than for gold. An investor-sunlight through the eye of a silver sewing needle burns. The same light through a larger gilded aperture creates heat without the burn. The gold price is up 15% since mid-May but the silver price has risen quicker in recent weeks. It now takes an ounce of gold to buy 80 ounces of silver. The historic value ratio over the last 20 years is 60:1 and over the 20th century about 50:1.

Gold is having its day as a safe store of value. This is not surprising against a backdrop of negative real bond yields. The sudden and major expansion in money-supply debases currencies. The geopolitical sabre rattling has added spice to the recipe. Based on historic value ratios the silver price has still some catching up to do. 

Back in the late 1970’s inflation was a major concern much as it is in today’s Covid times. During that decade inflation averaged 10 percent through a war in the Middle East and an Oil Embargo. Inflation peaked in 1980 at 13.5% in the aftermath of the Iranian Revolution. It was illegal to trade in gold in the early 1970’s. Nixon decoupled the dollar from a fixed gold conversion of $35 an ounce in 1971. Shut out of speculating in gold, the Hunt brothers turned to silver.

The Hunts joined with two Saudi sheikhs and bought huge quantities of silver futures. These futures would mature in September and December 1979 and early 1980. What was unusual was that they actually took delivery of the metal.

The Hunts throttled silver supply and so the price went up and up and up. The Hunts and allies stashed away 371 million ounces of silver bullion, at that time worth $16.4 billion. That was at least 75 percent of the visible world supply. From August 1979 to January 21st 1980 the silver price rose from $9 to $51 dollars per ounce. 

The Federal Reserve had to step in for the same reason it will step in if the Bitcoin market becomes a threat. The Fed compelled banks to stop making loans for speculative activity. It became clear that the Fed was after the Hunts’ scalps. Their credit evaporated. There were concerns that the Hunts might not be able to meet margins with new loans and would go under. The price of silver began to slide. 

On Silver Thursday, March 27, 1980, the Hunt brothers finally missed a margin call. The Silver price dropped to under $11 from its high of $48.70.

The Government considered a bailout to prevent systemic chaos. In the end there was no bailout. The government didn’t want anyone to think it was underwriting dangerous financial speculation. A private consortium of banks and companies bailed out the Hunts. Congress scolded Hunts and charged them with market manipulation. Fines followed fines and the Hunts went into bankruptcy. It took a decade for them to unwind all their silver holdings and make their pay back creditors. The final bill left them billions poorer but still wealthy by most standards.

Self-fulfilling prophecy is a staple of economics.  A recession can be caused by the expectation of a recession.  This is particularly relevant to a virus of fear driving global economic contraction. The self-defeating prophecy of economic forecasts and predictions is just as interesting.  There are so many predictions and cogent arguments out there now from more than the usual suspects that the price surge for gold and silver is just getting started.  Punters will buy now and sell later to defeat this prophecy.

Whatever way it goes this time it is different.  Punters can now speculate on gold.  History would never repeat itself surely?  But still on this Sweet Thursday we should remember Silver Thursday forty years ago.

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11 thoughts on “Silver Thursday”

    • Or the ISLN iShares Physical Silver ETC. But investing in ETC’s and ETF’s chokes off investment for exploration and discovery of new gold and silver deposits.

  1. I don’t see a double top in either Gold or Silver after this week, but a consolidation period in both metals that will only be healthy to shake out weak hands. The global economic, financial, and fiscal states of the Ships of State have never been this dire, unless we go back to the Middle Ages. The U.S. Federal Reserve is NOT omnipotent, as the new Bear Market for the U.S. Dollar will attest. Powell has committed, or at least has Jawboned, that he will put about $125 Billion into the financial markets for the next 18 months into 2021. When compared to the $35.5 Trillion size of U.S. equity markets, with Big Tech riding a short-lived boost due to stay-at-home behaviors that still need income to be sustained, the Fed’s planned injections come to some 0.4% of total market capitalization per month. This is assuming Blackrock actually buys stocks outright or via ETF’s at all since this may be the last straw for Fed Intervention for a Congress struggling to get re-elected. Anyway, the die is cast for much higher precious metals prices after a pause as the Currency of the Realm is debased in every conceivable way. Inflate to pay the Debt Monster!!! Inflate or Die.

  2. 2020…… Kind of an interesting number when you think of it as an end to not only good eyesight/Vision, but a lifetime as well. I was in my mid 30’s when 1980 and the Hunt Brothers became real famous for their Silver play. I’ve been a saver all of my life of old coins, some of which were rare, but mostly just old coins, trying to get my Boy Scout Merit badge for one. In the process, I saved a bunch of Silver Dollars, after all, in my earlier years we spent them just like we do paper dollars today…a dollar was a dollar! At 36 years of age, they weren’t worth a whole lot more, so when Jan. of 1980 came around and we were told Canada was paying $40+ dollars for each silver dollar, it was well worth the trip to go sell what I had.
    Long story short, the bubble popped of course and a few years later I bought a bunch of them back @$3 each and I still have them……………..waiting for maybe one more big play in the metals market.
    It’s been a lot of fun, meeting others like myself and hearing their stories as to how we all got where we are now. So the only question left now is: Will this be the BIG one everyone has expected all of these years or not?

    • Bill, you may be luck again in for the Big one. The putative Godfather of Gold, Jim Sinclair, has predicted that, when emancipated, Gold could rise to an eye-watering US$50, 000 to 87,500 an oz. Using a simple Gold/Silver ratio of 50 to 1, the Silver price could hit at least US$1,000 an oz. Bill Holter has predicted a higher Silver price. You may need to trot to Canada to sell your stack of Silver dollars again. Good luck.

      //usawatchdog dot com/simple-math-says-50000-to-87500-gold-price-jim-sinclair/

      • I have a small stack of Canadian silver dollars from many years ago. We were given one each June after a successful year of school. Mine all have King George VI on them.

  3. Good article John. Every dog has his day. At the time I cashed in all my inferior coins. Nothing rare or “fine”.
    From memory I realised about £45. Not a lot but a few tanks of petrol for the thirsty Land Rover.
    The Hunt brothers were only doing what countries and large companies do with their commodities. Well, perhaps not quite. If they had paid up front with cash and stashed it in their warehouse then maybe they would have been legal.
    Chris C.


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