The Hunt Brothers and the 1980 Silver Spike

Few episodes in commodity history are told as often as the rise and fall of silver at the turn of the 1980s. At its centre were Nelson Bunker Hunt and William Herbert Hunt, sons of the Texas oil magnate H. L. Hunt, who accumulated huge quantities of physical silver and silver futures. Their campaign helped drive the price to a record in January 1980 and ended in a collapse that shook brokers, banks and regulators.

A climate of inflation

The late 1970s were years of high and rising inflation in the United States, a weakening dollar and deep distrust of paper assets. Gold and silver both attracted buyers looking for protection. The Hunts shared that view and decided that silver, much cheaper than gold, offered a better store of value. They began buying in the early 1970s and stepped up their purchases later in the decade, together with associates that included wealthy investors from the Middle East.

Futures and physical delivery

The brothers did not just buy coins and bars. They built large long positions in silver futures on the New York and Chicago exchanges and, unusually, they often took physical delivery when contracts expired instead of rolling them forward. Metal delivered to them left the exchange warehouses, reducing the supply available to settle future contracts. Short sellers, who had promised to deliver silver, found themselves squeezed.

The mechanics are explained in more detail in our article on COMEX, paper gold and physical metal.

The peak and the rule change

Silver rose dramatically through 1979 and reached its high in January 1980. The surge drew silverware, jewellery and coins out of households and into refineries, as owners rushed to sell at prices they had never seen.

Exchange officials and regulators grew alarmed at the concentration of positions. The decisive move came in January 1980, when COMEX adopted rules limiting the size of positions and then restricted trading in silver futures to liquidation only, meaning traders could close positions but not open new ones. Margin requirements were raised as well. Buyers who relied on leverage could no longer add to their positions, and the market lost its main source of upward pressure.

Silver Thursday

With the market falling, the Hunts faced margin calls they struggled to meet. On 27 March 1980, the day that became known as Silver Thursday, one of their brokers was unable to collect what it was owed and the price plunged. Fears spread that brokerage firms and banks exposed to the Hunts could fail. A consortium of banks eventually arranged a large loan to stabilise the situation, a step that drew criticism at the time.

The aftermath

The episode had long consequences:

• Congressional hearings examined how the positions had been built and how the exchanges had reacted.
• Regulators and exchanges paid more attention to position limits and to large concentrated holdings.
• Civil litigation followed. In 1988 a jury found the Hunts liable for conspiring to manipulate the silver market, and the brothers later went through personal bankruptcy proceedings.
• Silver itself entered a long bear market. It would take decades for the price to approach its 1980 level again in nominal terms, and in inflation-adjusted terms the 1980 peak remains exceptional.

Lessons that still apply

Nothing in this story suggests that a similar spike is likely or unlikely today. Markets, regulation and the structure of silver demand have changed. But it is a reminder that futures markets have rules that matter, a point taken up in Reading the Commitments of Traders Report, and that the price of silver can move far beyond what supply and demand fundamentals alone would suggest. For the fundamentals themselves, see What Moves Silver Prices.

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