As silver speeds towards $50 per ounce, I read and hear more and more about how it hasn’t been this high since the 1980’s. It’s true that silver once closed at almost $50 an ounce, but you can’t count that, and there’s a good reason why.
Here’s what happened: There were these two guys, Nelson and William Hunt. They were brothers from a rich oil family in Texas. Not just any rich oil family, the richest family in the whole country at the time. Their daddy had set them up in oil businesses of their own and they expanded into cattle, sugar, real estate and pizza parlors. In the early 70’s inflation was cutting into their oil profits and they started looking around for something to invest in to protect their wealth. Since it was illegal to own gold bullion at the time, they decided to invest in silver, which was then trading at about $1.50 per ounce.
The brothers hatched a plan and in 1974 bought up 55 million ounces of silver on contract, which equaled about 8% of the entire world supply at the time. The price of silver responded by rising to $6.00 per ounce. Their purchases left them strapped for cash, but hungry for more silver, so they started looking for partners. In 1978 they teamed up with a couple of Saudi Sheiks they knew from their oil ventures and created an investment company called International Metal Investment.
The company quickly bought up every ounce of silver and every contract they could get their hands on, and by late 1979 they had amassed over 130 million ounces of physical silver and 90 million ounces on contract for immediate delivery, which just about put them in control of the market. This caused a panic and silver prices soared.
The Federal Reserve got hip to what was happening and made changes to the trading rules which forced the group to liquidate their holdings. The Hunt Brothers were eventually forced to declare bankruptcy. In 1988 they were convicted of conspiring to manipulate the market and the IRS slapped them with a 90 million dollar tax bill. (Ouch!) Meanwhile silver fell back to normal levels and by 1990 was trading at a more realistic $3.50 per ounce.
So when you hear that silver once traded at almost $50 an ounce in the 1980’s, it’s true, but it did that for only a couple of days. And during those two trading days, January 17 and January 18, 1980, the price of silver went over $50, but it never actually closed over $50.00. Those up and down prices during a trading day are called intra-day trading prices and are not recorded as the closing price. So technically, as of this date, silver has never closed at over $50.00 per ounce. But it certainly may do that very soon.
The steady rise in silver prices over the last 10 years is due to many factors, such as the increase in industrial use, the fact that more is being demanded than is available, the silver ETF’s and many other reasons. The good news is, at least this time, the rise in price is not because of couple of greedy cowboys trying to force the price up artificially. The bad news is, I believe high prices are here to stay. I believe we will continue to see the volatile up/down price in an upward pattern, always hitting new highs with bigger price swings.
The chart below shows the price of silver from 1900 through today. You can clearly see that over time the trend is upward, and you can also see what a huge (but temporary) impact the Hunt Brothers had on the market. (Click on the chart to bring up a full screen version).
The cold hard truth is that the price of silver products are directly related to the price of silver in the spot market. Manufacturers, distributors, and retailers of silver products are powerless to change that. The rising cost of silver has been a source of pain for all of us.
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