The Hunt brothers great silver gamble

How and why did the three sons of a famous Texan oil billionaire take a massive gamble on the global silver market in the 1970s? Like a plot from Dallas, the story of the Hunt brothers’ ill-fated attempt to control an inflationary hedge is even more incredible than it sounds. 

How the Hunt Brothers tried to corner the silver market

In the 1970s, three members of a famous Texas oil family were at the centre of an outrageous plan to protect their vast wealth from rampant inflation by cornering the global silver market. The Hunts may have felt smug about hoovering up almost two-thirds of the US silver supply largely on credit, but the market humbled them. They didn’t foresee changes to the rules around silver speculation, which, one fateful Thursday in March 1980, brought their whole house of cards down in spectacular fashion.

Who were the Hunt brothers?

Nelson Bunker, William Herbert and Lamar Hunt were three siblings among the 15 children of a legendary wildcat Texan oil tycoon with the grandiose name of Haroldson Lafayette Hunt Jr. 

It’s more than a little ironic that the trio were born in El Dorado, Texas, given the quest for precious metal that was to define their lives.

H L Hunt – born February 17th, 1889, had a gambler’s instinct. A legendary poker player, he invested a $5,000 inheritance, making (and losing) money in real estate and cotton. But it wasn’t until 1930 that he found his fortune in oil.

HL Hunt acquired the leases on unexplored East Texas oilfields, which eventually yielded the biggest US reserves, bar Alaska. HL Hunt formed Placid Oil, which at one time became one of the biggest independent oil companies in the USA, making H.L.Hunt the world’s richest man. 

If you’re old enough to remember Dallas, think of H.L.Hunt like Jock Ewing, with his children providing the drama, of which there was to be plenty. Except the question wasn’t ‘Who shot JR? ‘But who cornered the silver market?’

Nelson Bunker Hunt, the eldest, was the most colourful of the trio, and most dominant. Devout Christian funding expeditions to find the Titanic and Noah’s Ark while also loving horse racing, owning more than 1,000 thoroughbreds, including 1976 Derby winner, Empery.

He was a virulent anti-Communist, which led by an unfortunate coincidence, to falsely implicate him the John F Kennedy’s assassination. An advertisement in the Dallas Morning News, which Bunker had helped finance, criticised JFK as a traitor the day he was shot.

Lamar Hunt was focused on sport, founding the American Football League (AFL), Major League Soccer (MLS) and World Championship Tennis. He was also the owner of the Kansas City Chiefs (NFL), Columbus Crew and FC Dallas (MLS). 

In contrast to his brothers, William Herbert Hunt was far less exuberant. He had various real estate and oil businesses and a penchant for ancient Greek coins and vases.

Nelson became wealthy in his own right through oil exploration in Libya, with the Sarir discoveries in 1961, the largest oil deposits in North Africa.

However, the tap was turned off after Muammar Gaddafi took power in 1971 but not before Bunker made an estimated $100 million.

The brothers’ wealth increased further on the death of their billionaire father in November 1974 at the age of 85. With so many children spread across three separate families, the Hunts didn’t inherit the whole pie, but Placid Oil and Penrod Drilling, which owned countless rigs, generated significant revenues, given the upward trajectory of oil prices.

The shadow of Inflation over 1970s America

To understand what drove the Hunts to dream up this crazy money-making scheme, you first need to understand the macroeconomic context. 

The 1970s saw rampant inflation in the US, hitting double figures in 1974, defining Jimmy Carter’s single term in office. Gas prices reached historical levels with long queues at the pumps – encapsulating the effects of inflation on Main Street – and providing one of the enduring images of the period.

Average Inflation11.
Month-by-month US Inflation 1974-81

Though Carter’s reputation was tarnished by inflation, economists pin the blame on events outside his control, such as the Vietnam War, costing an estimated $120bn, and the OPEC crisis during the Ford administration (1974-77), which caused a huge spike in oil prices.

Gold bugs and bitcoiners might provide an alternative explanation, pointing to the Nixon Shock in 1971 when the international convertibility of US Dollars into gold was suspended, and the modern era of fiat money began.

Regardless of its cause, the Hunt Brothers were focused on how inflation was destroying their inheritance, and Nelson’s chance meeting with right-wing conspiracy theorists may have sowed the seed for his audacious plan to protect their wealth.

Peter Beta pushed the Fort Knox gold conspiracy theory, suggesting the Rockefellers had secretly bought up and expatriated all the gold held in the famous vault.

So, at some point in 1972, Nelson Bunker Hunt hatched an insane plan to shelter his vast family wealth in what he saw as a superior store of value – silver.

How the Hunts cornered the silver market

Here’s how the Hunts pulled off their monumental silver-buying:

  • Starting in 1972, Bunker and Herbert started buying silver – both futures contracts and spot – using margin that on COMEX (the New York Commodities Exchange) required just 4% for a standard contract of 5,000 ounces of silver
  • Over time the Hunts gradually increased their holdings, always buying and rarely selling. Around 1975, they looked to build a syndicate of other wealthy investors from the Middle East and Brazil.
  • As a dress rehearsal for their plans for silver, the Hunts took a huge position in the Soybean market in 1977, attracting the attention of the Commodities & Futures Trading Commission (CFTC). They were forced to unwind their holdings but learned the limits of the CFTC ability to define market manipulation.
  • By 1979 the Hunts had set up a web of companies in the Bahamas, Bermuda and Switzerland to give cover for the purchasing of silver on behalf of a group that now included Lebanese businessmen and a Saudi Prince.
  • Silver prices doubled in 1979 as FOMO set in, enabling the Hunts to pyramid, reinvesting their profits to build an even greater position.
  • They also employed a tactic that sounds more like a wrestling move than an investing trick, the ‘silver straddle’ buying future contracts as well as short positions allowing them to wash trade to defer or reduce their tax bill.
  • In order to squeeze the silver market they preferred to take physical possession of the silver, but wouldn’t bring it to Texas because of a 5% state tax, so they flew much of it to Switzerland

According to the Great Silver Bubble, by Stephen Fay, the Hunts silver hoard eventually reached 280 million ounces, roughly 80% of the silver mined in 1979, worth $14bn by January 1980 as silver prices rose from $11 an ounce in September 1979 to nearly $50 an ounce.

And circumstances beyond the silver markets in London, Chicago and New York were conspiring to push safe haven assets, like silver and gold, higher.

The Cold War was at its peak, with Russia invading Afghanistan in December 1979. The US responded by imposing a grain embargo and boycotting the 1980 Moscow Olympics.

At the same time, the Iran Hostage Crisis, which began in November 1979, raised Middle East tensions (eventually running for 444 days).

The rule change that scuppered the Hunt’s plan

It’s a quirk of investing that you can take absurd risks putting only a fraction down – known as margin – to cover potential losses under normal market conditions.

The Hunts enormous oil wealth enabled them to open huge positions at commodity brokers, helped by their complex array of entities and associates offshore and in Switzerland. 

As the price of silver rose, their positions became more profitable, allowing greater leverage to purchase more silver – rinse and repeat.

But as smart as the Hunts were to amass such a fortune largely on credit, they didn’t expect their behaviour to be curtailed by crucial changes in rules around the purchase of commodities, like silver, on margin, which ironically, were ushered in as part of a raft of anti-inflation measures.

The four-man CFTC board, set up in 1975, had been split on whether to intervene in the silver market as the silver squeeze gathered pace.

The Chicago Commodities Exchange began by increasing margin requirements and was followed by applying position limits designed to reduce the size of trades.

The New York Commodities Exchange (COMEX) had been reluctant to act. When it became clear that the Hunts owned 77% of the world supply of privately held silver, they introduced position limits of 500 futures contracts on January 7th, 1980.  

But this was too little, too late. The Hunts found ways around the position limits, and the market had taken on a life of its own, with FOMO sending silver over $50 in January, a record high.

So three days later, on January 21st, COMEX took the nuclear option and restricted silver trading to liquidation only, in effect barring bulls, like the Hunts, from buying more and creating a seller’s market.

The effect on the price was exactly as intended, but less consideration was made for the impact of the falling value of silver on the Hunts’ credit-based positions.

As their silver portfolio sank into the red, they needed to allow some positions to be automatically liquidated or borrow enough to satisfy margin requirements. For every $1 the price of silver fell, they owed an additional $ 20 million more in margin.

But despite the increasing pressure of margin calls, the Hunts remained defiant bulls but needed to call in all the favours their extensive business network could provide to raise the necessary funds and hope that the price would recover. Instead, the Hunts’ source of credit dried up.

On March 14th, Paul Volcker, Chairman of the Federal Reserve, pressured US banks not to lend money for speculative purposes to reign in inflation.

What was described as ‘moral suasion‘ must have been a bitter pill for Bunker to swallow, given the very thing he was trying to evade was now pushing him to bankruptcy.

On March 19th, margin calls at brokers Bache, where the Hunts were personally buying silver, weren’t met for the first time, leaving the brokers to cover the $ 233 million hole themselves. It was a similar situation at their offshore entity IMIC, and in Switzerland, where the Arab consortium was buying through ACLI.

The Hunts tapped Placid Oil for a loan, but that wasn’t enough, then Bunker flew to Jeddah and left empty-handed. His final throw of the dice was issuing a silver-backed bond in Paris on March 26th to raise $2bn. But it wasn’t to be.

The collapse – Silver Thursday

The price of silver tanked on what became known as Silver Thursday (March 27th, 1980), collapsing 32% from $15.80 to $10.80. This meant that silver was down 78.4% from its January high of $50 – and people complain that Bitcoin is volatile. The Hunts’ $7bn paper asset turned into a $1.7bn debt.

As the scale of Hunt’s silver position became clear, along with the number of brokers and banks they owed more margin to, fear spread throughout a financial system that was already creaking.

Some banks had badly misjudged the path of interest rates. In a situation repeated in early 2023 by the collapse of Silicon Valley Bank, First Pennsylvania had $1.2bn in long-term bonds paying 8%, well below the commercial lending rate of 20%.

Emergency lending helped the ailing banks, while Bache – the worst affected by margin calls – had managed to liquidate enough of the Hunts’ portfolio to stay solvent and cover the loans it had assumed on their behalf. But another disaster loomed.

The Hunts had agreed to pay Engelhard brokers $ 665 million for 19 million ounces of silver they were contracted to receive on March 31st for a price of $35 an ounce. This was the biggest deal in the history of the silver market, but the Hunts had no way of honouring it.

The fall in price meant that if they sold the collateral used to obtain the contract, along with all 19 million ounces, they would still be down a cool $ 335 million.

Cleaning up the mess

If the market got wind of the Hunts reneging of the Engelhard trade, the price of silver would plummet further, creating a worsening spiral which would trigger even greater margin requirements and more forced liquidations.

It just so happened that the great and the good of the US financial world were meeting in Boca Raton, Florida, the weekend of March 29/30th for the Federal Reserve City Bankers Association. So the Hunts flew down, and so did Engelhard’s charismatic Chairman, Milton Rosenthal.

Though Rosenthal insisted on receiving cash, the banks couldn’t be convinced to lend the Hunts the money, so an eleventh-hour agreement was made to receive oil concessions in the Beaufort Sea (North of Alaska) instead.

Though that resolved the Engelhard issue, the Hunts still owed over $1bn across various brokers and banks. This left Paul Volcker in a quandary; his policies had been designed to restrict credit financing speculation, but unless he gave the nod for banks to underwrite the biggest market gamble in history, there might not be a financial system left for Volcker to manage.

Just as in 2008, the banks were too-big-to-fail, Hunt’s silver heist became so big that the potential was catastrophic without a soft landing for their scheme. 

Though Volcker denied it, reports suggested that he tacitly approved a credit line to the Hunts from private banks, which eventually amounted to over $1bn.

The move was ostensibly to shelter investors caught up in the silver bull market, but it reeked of an insider bailout for the established and politically well-connected Texan oil barons and the Wall Street brokers who risked being taken down with them.

Democratic Senator, James Sasser, captured the mood in April 1980 

[I am] most disturbed by the fact that the nation’s financial community has seen fit to extend the Hunt family this staggering amount of credit while dairy farmers, home-builders are going out of business because of high-interest rates“. April 25, 1980

Democratic US Senator, James Sasser, April 1980

The Aftermath & Congressional Hearings

Such was the ruckus generated that on April 29th,1980, a congressional hearing of the House Government Operations Subcommittee on Commerce, Consumer and Monetary Affairs was called 

However, in what appears to be a strategic piece of ‘forum shopping’, the Hunts were a no-show, preferring to appear on May 2nd, 1980, before the Senate Agricultural Committee but threatened with contempt of Congress, they appeared before the House Sub-Committee just a few hours later.

The Hunt brothers testify to congress accused of cornering the silver market
William & Nelson Hunt testify at a Senate Hearing May 2nd, 1980 accused of cornering the silver market

When they finally showed their faces, the Hunts were defiant, refusing to declare the scale of their silver holdings or even show remorse or culpability. 

William Herbert Hunt famously testified that he bought silver simply because of rampant inflation and a lack of confidence in the US dollar.

At no time did I attempt to corner, squeeze or manipulate the silver market”. 

William Herbert Hunt, Senate Hearing, May 1980

Addressing the circumstances that forced William and his brother to become sellers, they were self-pitying “The natural result of these artificial factors was to drive the price of silver down. Mine was the distressful economic situation of being compelled to be a seller without a buyer”.

20 stone Nelson Bunker, the archetypal fat cat, was just as phlegmatic reflecting on their losses “A billion dollars ain’t what it used to be” 

Few believed the Hunts’ claim to innocence, but they got a $1bn loan from private banks secured by oil and gas properties. Silver and contracts for future silver purchases were put into a partnership to liquidate over a ‘considerable period of time’. But that wasn’t the end of the story, as the Hunts faced a litany of legal action throughout the 1980s.

Hunt brothers faced a decade of legal action

Two class actions were brought against the Hunts in 1982 and 1984 lumped together anyone who held a silver futures position and put investment bank Merrill Lynch in the dock. They were settled for $ 58 million in April 1989

The Hunts were back in court in August 1988, charged “with manipulating and attempting to manipulate the prices of silver futures contracts and silver bullion during 1979 and 1980” along with their Saudi partners, defending a lawsuit by Minpeco SA, a state-owned Peruvian minerals company.

Minpeco made a successful claim for $132.45 million due to losses caused by the silver surge added to the Hunts’ growing tab, alongside fines from the Federal Commodity Regulator and a huge bill from the IRS, who was next in line.

In 1989, Bunker Hunt owed $730mllion in back taxes, Herbert $317 million; throwing in other creditors, their debts were $1.5bn and $1.2bn, respectively. The brothers declared bankruptcy in 1989, while Lamar escaped with a modest $500k tax bill, having been comparatively restrained in his silver buying. 

What happened to the Hunt Brothers?

Lamar died in December 2006 at 72, while Nelson died in 2014 at 88, having twice been the world’s richest man, according to Times journalist Stephen Fay.

Despite the silver debacle, William Herbert Hunt went on to make billions from oil extraction in East Montana and is ranked 716th on the Forbes 2023 rich list. He’s the surviving member of the trio, celebrating his 94th birthday on March 6, 2023

With inflation close to the levels experienced in the 1970s, I wonder if William Herbert Hunt looks at bitcoin and wishes it had been invented 30 years earlier. No need to hoover up two-thirds of the US supply of physical silver, fly it to Switzerland and pay for storage.

With just a few clicks, he could have become a Bitcoin Hodler, preserving his wealth in digital gold, storing it on a hard wallet the size of a matchbox.