Silver Thursday and the Hunt brothers

The accumulation

In the early 1970s, Texan oil-and-cattle heir Nelson Bunker Hunt and his brother William Herbert Hunt started buying physical silver. By early 1974 the two brothers held around 50 million ounces between them. Through the rest of the decade they kept buying, adding futures contracts on COMEX in New York and the Chicago Board of Trade to their physical holdings, and later brought in Saudi partners through a Bermuda-registered vehicle, International Metals Investment Company (IMIC), set up in July 1979. By the end of 1979, the best-sourced estimate puts Hunt and IMIC holdings at around 195 million ounces, with some broader accounts, including partner-side holdings, putting the combined figure as high as 235 million. The claim sometimes repeated, that this was "a third of the world's silver supply", does not hold up well: one industry estimate of investable, above-ground silver in 1980 puts the Hunt position closer to 9% of that narrower pool, not a third of everything mined and held worldwide. Either way, this was a very large, concentrated long position, and one detail matters most for what follows. Unusually for a speculative buyer, the Hunts often stood for delivery on their futures contracts rather than closing out before expiry, which pulled physical metal out of the market and made it scarcer still.

The price runs

The price answered. Silver had traded below $10 an ounce for most of the 1970s, around $6 an ounce in early 1979. By 31 December 1979 it closed the year at $34.45. In the third week of January 1980 it peaked, though exactly where depends on which market is checked: the London Fix hit $49.45, COMEX's intraday high touched roughly $50.35, and the Chicago Board of Trade printed an intraday high of $52.50, all within a day or two of each other. This course's own materials use "around $49-50 an ounce" as the working peak, a fair summary of a genuine range rather than a claim that any single number is the precise truth.

The exchanges move

The exchanges moved first. On 7 January 1980, COMEX imposed emergency speculative position limits on silver futures, a step known afterwards as "Silver Rule 7". That was not enough on its own, so on 21 January 1980 COMEX went further and restricted trading to liquidation-only orders, closing existing positions rather than opening new ones, a move the Chicago Board of Trade matched. Tighter margin plus a one-way trading rule began to choke off the position from below. Two months later, on 25 and 26 March 1980, William Herbert Hunt told the family's major creditors that they no longer had enough cash or collateral to meet the margin calls that were coming.

Silver Thursday

The reckoning arrived on Thursday 27 March 1980, remembered ever since as "Silver Thursday". The Hunts missed a reported $100 million margin call. Silver opened that day near $21.62 an ounce and closed at $10.80, a fall of roughly 50% in a single session. Their broker, Bache Group, was left with about $122 million of unsecured exposure to Hunt accounts, more than the missed call itself. Days later, on 31 March, bullion dealer Engelhard Minerals and Chemicals, owed physical silver on contracts coming due, demanded roughly $665 million in cash rather than accept delivery risk. A consortium of thirteen banks stepped in with a $1.1 billion loan, arranged through the Hunts' oil company, Placid Oil, so the family could settle with Engelhard and stretch its other debts over a longer term. From the January peak of roughly $50 to the Silver Thursday close, silver had fallen close to 79% in about two months.

The legal aftermath

The legal aftermath ran on for most of the decade. In August 1988 a federal jury, in Minpeco, S.A. v. Hunt, found Nelson Bunker Hunt, William Herbert Hunt and, on some counts, their brother Lamar Hunt liable for conspiring to corner the silver market. Two slightly different damages figures are quoted, around $134 million from Minpeco and $132.6 million from the Hunts, both after statutory trebling; the gap comes from how the two sides calculated the trebling, not from any contradiction in the underlying verdict. The following month, Bunker and Herbert Hunt filed for Chapter 11 bankruptcy; part of the wind-down was a 1988 sale of Bunker Hunt's 580 thoroughbred horses, which raised $46,911,800, reported at the time as the highest total in thoroughbred auction history. In 1989 the brothers settled separately with the CFTC: each paid a $10 million fine and accepted a lifetime ban from US commodity trading. The CFTC's own history credits this episode directly for its Regulation 1.61, adopted on 16 October 1981, requiring exchanges to set speculative position limits on all futures contracts, a rule still in force today in modified form.

The mechanism: cornering a market

The course calls this mechanism cornering a market, and it sits squarely in the Lecture 2 material on why exchanges set position limits at all. A futures market normally keeps itself honest through arbitrage. If the future trades rich to the physical price, a trader can buy the metal, hold it, and sell the future against it, pulling the two prices back together. That trade only works if the short seller can source physical metal to deliver, or buy it back, without paying a price set by the other side. A corner defeats this. When the same buyer who is long the future also controls a large share of deliverable supply, and keeps standing for delivery instead of closing out, short sellers cannot source metal except from the people squeezing them, at a price those people effectively control. That is what "a giant long plus control of supply" means in practice, and it is why this episode remains the standard illustration of the manipulation that position limits exist to prevent.

Why margin, not fundamentals, ended it

Margin is the tool that eventually stops a corner, and it works indirectly. An exchange cannot simply order a trader to sell. What it can do is raise the initial margin required to hold the position, and restrict what kind of new orders are allowed, and that is enough to turn an ordinary market-risk position into an acute cash problem. Even a trader convinced their view is fundamentally correct can be forced out if margin calls arrive faster than they can raise cash, which is exactly what happened between COMEX's 7 January rule change and the missed call on 27 March. A squeeze on one desk also becomes a risk for everyone connected to it. Bache's unsecured exposure and Engelhard's demand for cash instead of delivery risk both show the same position spilling over into counterparty risk for a broker and a bullion dealer who had done nothing wrong, which is why an emergency bank loan, not an ordinary default process, was needed. There is also a link back to cost of carry, covered in Lecture 5: while a squeeze runs, the arbitrage that normally anchors a futures price to spot cannot function, because the short side of that arbitrage needs deliverable supply the squeeze has locked up. The futures price can run far from any sensible cost-of-carry relationship until something, here the exchange, forces the position to unwind.