The Story of Silver

by William L. Silber

  62. This quote and the next are from “Talkfest with the Hunts,” Fortune, August 1980, p. 167.

  63. Members of the Comex board are listed in Senate Committee on Banking, Housing, and Urban Affairs, “Information Related to Futures Contracts in Financial Instruments,” Hearing, 96th Cong., 2d sess., pt. 1, July 1980, pp. 9–10.

  64. The cash price of silver was $8.94 on August 1, 1979, and $18.00 on October 1, 1979.

  65. Senate Subcommittee on Agricultural Research, and General Legislation, “Price Volatility in the Silver Futures Market,” p. 31.

  66. Fay, Beyond Greed, p. 138.

  67. Ibid.

  68. CFTC Docket No. 85–12, p. 26.

  69. The quotes in this paragraph are all from “Commodities: Squeezing the Market in Silver,” New York Times, October 29, 1979, p. D2.

  70. See Burrows, CFTC Report, mimeo., undated, Chapter 1, p. 4.

  71. Cash gold averaged $227 and silver averaged $6.25 in January 1979, for a ratio of 36.3 to 1. In October 1979, gold averaged $392.70, and silver averaged $16.73, for a ratio of 23.4 to 1. The increase in silver was 167% compared with an increase of 73% for gold.

  72. See Fay, Beyond Greed, p. 135.

  73. See N.H. Gale and Z.A. Stos-Gale, “Ancient Egyptian Silver,” Journal of Egyptian Archaeology 67, no. 1 (1981): p. 103, for evidence that silver was worth more than gold. Also see Arthur R. Burns, Money and Monetary Policy in Early Times (New York: Alfred A. Knopf, 1927), p. 186. In Genesis the Bible lists silver before gold in stories of the Patriarchs, and a proximity study of gold and silver in Genesis, conducted at my request by Bernard Septimus, Jacob E. Safra Professor of Jewish History and Sephardic Civilization at Harvard, confirms that relationship (he cautions, however, that there are reasons other than relative value for word ordering in the Bible). Silver’s medicinal use was well known even back then, according to Rhonda L. Rundle, “This War against Germs Has a Silver Lining,” Wall Street Journal, June 6, 2006. She writes: “Since ancient times, people have known of the germ-fighting qualities of silver. Dead bodies were wrapped in silver cloth to ward off bad odors. Milk stored in silver vessels didn’t spoil as quickly.” For a technical discussion, see A. Lansdown, “Silver in Health Care: Antimicrobial Effects and Safety in Use,” in Biofunctional Textiles and the Skin, ed. U.-C. Hipler and P. Eisner (Basel; New York: Karger, 2006).

  74. Phillip McBride Johnson, Commodities Regulation (Boston: Little Brown and Company, 1982), 2, p. 233

  75. See Williams, Manipulation on Trial, p. 5.

  76. There were many lawsuits and legal proceedings concerning the allegations of manipulation of silver prices during this period, but there were two that dominate the record. The first is the CFTC Division of Enforcement hearings that began in 1987 before an administrative law judge following the 1985 charges in CFTC Docket No. 85–12. The second was a civil trial that began in 1988 in the U.S. District Court, Southern District of New York, Minpeco S.A., et al., Plaintiff, against Nelson Bunker Hunt, et al., Defendants. Neither of these cases were criminal prosecutions, which are normally undertaken by the Department of Justice (see Johnson, Commodities Regulation, 1, p. 183). The discussion in the text reflects both of these cases.

  77. These charges are detailed in CFTC Docket No. 85–12, esp. para. 36, 49, 51, and table 3. In 1978 the four countries mentioned in the text produced 162 million ounces of silver according to Handy & Harman, The Silver Market in 1978 (New York, 1979), p. 21. Total noncommunist world production was 265 million ounces.

  78. See CFTC, Report of the Commodity Futures Trading Commission on Recent Developments in the Silver Futures Markets,” [prepared for] Senate Committee on Agriculture, Nutrition, and Forestry (Washington, DC: Government Printing Office, 1980), p. 68.

  79. Williams, Manipulation on Trial, pp. 6–7, provides an excellent discussion of the alternative definitions of manipulation and suggests the “pump and dump” analogy. Also see Albert S. Kyle and S. Viswanathan, “Price Manipulation in Financial Markets: How to Define Price Manipulation,” American Economic Review 98, no. 2 (2008).

  80. “Rush of Silver-Delivery Offers Spurs Fall in Prices as Speculator Showdown Mounts,” Wall Street Journal, November 30, 1979, p. 38.

  81. “The Lone Ranger: Hunt Rides Silver Out of the Market,” Wall Street Journal, February 29, 1980, p. 12.

  82. The quote is from “Commodities: Squeezing the Silver Market,” New York Times, October 29, 1979.

  83. Average daily trading volume on Comex in silver during October 1979 was 8,339 contracts compared with a daily average of 19,026 contracts from January 1, 1979 through September 30 (based on the CRB database).

  84. This quote and the next are from Deposition of Lamar Hunt, Minpeco S.A., et al., Plaintiff, against Nelson Bunker Hunt, et al., Defendants, October 21, 1986, 1, pp. 51–52.

  85. According to SEC, Silver Crisis of 1980, pp. 31–32, Lamar Hunt held approximately 8.1 million ounces of silver in January 1980, compared with 195 million ounces for Bunker and Herbert Hunt (including IMIC). The Kansas City Chiefs went 7–9 in 1979.

  86. The cash price of silver was $1.81 on January 12, 1970, a day after the Super Bowl. On October 31, 1979, it was $16.40, or 9 times higher.

  87. Wall Street Journal, December 4, 1979, p. 3.

  88. New York Times, December 27, 1979, p. D11.

  89. “Gold and Silver at Peaks; Dollar Ends Year Mixed,” New York Times, January 1, 1980. The CRB database records a cash price of $23.65 for December 21 and gives a price of $28.00 for December 31, 1979, unchanged from the previous day. The spot Comex contract (for January 1980, delivery) closed at $34.45 on December 31, up $5.10 from the previous close. I used the Comex close because it seems that the Handy & Harman cash price (reported in the CRB data) was not updated or that the Comex price moved after Handy & Harman posted its 12 noon quote. The $34.45 close is confirmed in CFTC Docket No. 85–12, p. 29.

  90. Williams, Manipulation on Trial, pp. 114–15, shows the connection between the Soviet invasion of Afghanistan and silver during the last week of 1979.

  91. The first quote is from “Price of Gold Tops $500 for First Time,” New York Times, December 27, 1979, p. D11; the second quote is from “Gold’s Price Edges Up to $517.80 an Ounce for Another Record,” Wall Street Journal, December 31, 1979, p. 5.

  92. The average price of $8 reflects the following calculation: The Hunts bought approximately 500 contracts a day through IMIC over a two-month period, between “late” July 1979 through early September, according to Williams, Manipulation on Trial, p. 31. Therefore, they accumulated 20,000 contracts representing 100 million ounces at an average price during that period of about $10. They already owned about 100 million ounces from their earlier purchases in 1973 through 1977 (see SEC, Silver Crisis of 1980, p. 32). The average price back then was about $5. The average cost, therefore, was about $7.50, which I rounded up to $8.00 to reflect slippage. My estimate of the size and profitability of the Hunt position is supported in Hurt, Texas Rich, p. 419.

  93. Fay, Beyond Greed, p. 135.

  94. This discussion is based on Minpeco S.A., plaintiff v. ContiCommodity Services, et.al. Civil no. 81–7619 (M.E.L.) Fourth Amended Complaint, p.93ff; and Fay, Beyond Greed, pp. 147–50.

  95. These numbers are from Williams, Manipulation on Trial, p. 43n27.

  96. “Peru Sustained Loss of About $80 Million because of Speculation in Silver Futures,” Wall Street Journal, February 15, 1980, p. 30.

  97. “Treasury Pushes New Silver Policy,” New York Times, June 22, 1934, p. 31

  CHAPTER 19: COLLAPSE

  1. The quotes and information in this paragraph are from “Silver Thefts: A High Yield,” New York Times, February 24, 1980, p. WC1.

  2. “As Silver Market Reaches Record Highs, So Does Price of Flatware,” Hartford Courant, January 19, 1980, p. 14.

  3. “Silver Thefts: A High Yield,” New York Times, February 24, 1980, p. WC1.

  4. This quote and the remaining in this paragraph are from “Gold and
Silver Prices Cause Rash of Thefts throughout the Country,” New York Times, February 1, 1980, p. A1.

  5. “People Cashing in on Precious Metal Boom,” Los Angeles Times, February 6, 1980, p. C1.

  6. Ibid.

  7. The headline “Britons Liquidate a Heritage” and the remaining quotes in this paragraph are from the New York Times, January 23, 1980, p. D1.

  8. “Metal Fever Hits—‘Mom’s Teeth’ Sold,” Chicago Tribune, January 20, 1980, p. 3.

  9. This and the remaining quotes in this paragraph are from “Too Many Coins into the Melting Pot,” New York Times, January 20, 1980, p. D41.

  10. “Declining Dollar? Not 90%-Silver Ones Involved in U.S. Sale,” Wall Street Journal, February 8, 1980, p. 4.

  11. Handy & Harman, The Silver Market, 1980, 65th Annual Review (New York, 1981) gives the estimated export from India as 25.7 million ounces in 1980 (p. 18). Mexico’s production was 51.5 million ounces (p. 25).

  12. See Allen Boraiko, “Silver: A Mineral of Excellent Nature,” National Geographic, September 1981; an estimate of 3.4 billion ounces in India is found in W.J. Streeter, The Silver Mania (Dordrecht, Neth.: D. Reidel Publishing Company, 1984), p. 109.

  13. “Smuggled Silver Trade Revives in Dubai,” Times of India, March 3, 1980, p. 8.

  14. Ibid.

  15. “The Lone Ranger: Hunt Rides Silver Out of the Market,” Wall Street Journal, February 29, 1980, p. 12.

  16. See U.S. Bureau of Mines, The Price Responsiveness of Secondary Silver (Washington, DC, 1982), pp. 7, 117. In “Silver Threads,” Euromoney, p. 136, Henry Jarecki had reported an estimated total world supply of 600 to 800 million ounces, but his calculation is less reliable than the detailed study released in March 1982.

  17. The first quote is from “Scrap Silver Market Saturated,” Washington Post, January 19, 1980, p. C7; and the second quote is from “Canadian Silver Sellers’ Checks Bounce as Refiners Stop Buying,” Washington Post, January 21, 1979, p. D13.

  18. The daily standard deviation of returns between October 1 and December 31 was 1.3% in 1978 and 3.2% in 1979. The first ten trading days in January 1980 began on January 2 and ended on January 15. The cash price of $33.65 was on January 9, 1980, and the cash price of $43.75 was on January 15, 1980.

  19. Daily trading volume during the first ten trading days of 1980 was 8,882 contracts compared with 17,197 contracts for the first ten trading days of 1979. Although the dollar volume of trading was higher in 1980 because the price of silver was more than double, the Commodity Exchange and brokers earn commissions per contract, so the decline hurt their business.

  20. “Metal Fever Hits—‘Mom’s Teeth’ Sold,” Chicago Tribune, January 20, 1980, p. 3.

  21. Ibid.

  22. For further details see CFTC, Report of the Commodity Futures Trading Commission on Recent Developments in the Silver Futures Markets, at the request of Committee on Agriculture, Nutrition, and Forestry, 96th Cong., 2d sess. (Washington, DC: Government Printing Office, 1980), pp. 73–74.

  23. “Limits on Silver Futures Touches Off Price Drop,” New York Times, January 9, 1980, p. D1.

  24. “Position Limits Adopted in Comex Silver Futures,” New York Times, January 8, 1980, p. D1.

  25. “Limits on Silver Futures Touches Off Price Drop,” New York Times, January 9, 1980, p. D1.

  26. Details of the EFP with Engelhard come from SEC, Silver Crisis of 1980, pp. 36–37.

  27. The intraday high in spot silver on Comex was reported as $50.36 and the intraday high on the Chicago Board of Trade was $50.50 (see New York Times, January 19, 1980, p. 36).

  28. There are no sterling silver golf balls (perhaps a patent pending now?), but if there were they would weigh the regulation 1.62 ounces (avoirdupois), which is 1.47675 troy ounces. Sterling is 92.5% pure so each ball would contain 1.366 troy ounces of pure silver. Three balls contain 4.098 troy ounces, which is worth $5.29 at $1.29 per ounce and $204.90 at $50 an ounce.

  29. On February 1, 1979, the closing price of spot gold was $229.60 and silver was $6.66. Using the peak closing prices on January 18, 1980, in the next note gives an increase in silver of 7.6 times and an increase in gold of 3.7 times.

  30. Here are two precise calculations. The closing price on Comex of spot gold was $822 and the closing price of silver was $46.80, for a ratio of 17.56 to 1. The high for spot gold on Comex was $850 and dividing that by the high of $50.36 for silver gives a price ratio of 16.88 to 1.

  31. “Comex, in Bid to Cool Silver Market, Bans Traders from Taking New Positions,” Wall Street Journal, January 22, 1980, p. 39.

  32. This discussion is based on an untitled and undated 112-page report that appears to be a CFTC document summarizing the Comex meeting and follow-up discussions. It cites transcript testimony dated 1984, so it was prepared after that date, and is partially redacted. This pdf file was provided to me by Henry Jarecki and my page citations are based on the pdf. It is referenced below as CFTC-Jarecki Pdf.

  33. CFTC-Jarecki Pdf, p. 3.

  34. Ibid.

  35. Ibid., p. 4.

  36. SEC, Silver Crisis of 1980, p. 31.

  37. CFTC-Jarecki Pdf, p. 2.

  38. CFTC-Jarecki Pdf, p. 3, reports the vote was ten in favor, none opposed, and five abstentions.

  39. The price decline was $2.80 for the January Comex contract (see Washington Post, January 22, 1980, p. D15), for a log return of −6.2%. The daily standard deviation of returns during the previous 90 calendar days was 5%, so the decline on January 21 is not statistically significant.

  40. “Comex, in Bid to Cool Silver Market, Bans Traders from Taking on New Positions,” Wall Street Journal, January 22, 1980, p. 39

  41. “Chicago Board Limits Futures Trading,” New York Times, January 23, 1980, p. D12. The spot price is for the January contract on Comex (see Washington Post, January 23, 1980, p. B10) and the log return of −25.8% is statistically significant given the daily standard deviation of returns of 5% during the previous 90 calendar days.

  42. “Comex Curb Hits Bullion,” Guardian, January 23, 1980, p. 15.

  43. The two-day log return from $46.8 to $34 of −32% is significant given the daily standard deviation of returns of 5% over the 90 calendar days ending with January 18, 1980.

  44. These excerpts are from Herbert Hunt’s letter in CFTC-Jarecki Pdf, pp. 12–13.

  45. Williams, Manipulation on Trial, p. 44.

  46. CFTC-Jarecki Pdf, p. 4, shows Engelhard short 4,918 contracts on January 21, 1980.

  47. See “A Study of the Silver Market,” in “Report to the Congress in Response to Section 21 of the Commodity Exchange Act, Public Law No. 96–276,” 96th Cong., 2d sess., section 7, pt. 2, June 1, 1980. Statutes at Large, 94, p. 133 (542).

  48. See CFTC-Jarecki Pdf, pp. 12–13.

  49. “Country-Boy Hunt King of Silver Hill,” Chicago Tribune, March 2, 1980, p. N1.

  50. “The Lone Ranger: Hunt Rides Silver Out of the Market,” Wall Street Journal, February 29, 1980, p. 12.

  51. Interview with Tom Russo, February 15, 2017.

  52. “Copper Futures Curbed to Prevent a Squeeze,” New York Times, November 16, 1979, p. D1.

  53. “Coffee Futures Curbed to Prevent a Squeeze,” New York Times, November 22, 1979, p. D8.

  54. “Self Interest Charged in Comex Silver Rulings,” Chicago Tribune, May 31, 1980, p. A6

  55. The quote is from “Talkfest with the Hunts,” Fortune, August 11, 1980, p. 168. The eyewitness prefers to remain anonymous but confirms that a number of board members sold thousands of gold spreads, which collapsed in value in sympathy with silver after the January 21 announcement.

  56. The liquidation rule was actually terminated and replaced by a less onerous restriction on new positions. See CFTC, Report on Recent Developments in the Silver Futures Markets, p. 80.

  57. The information in this paragraph is from the SEC, Silver Crisis of 1980, pp. 36–38.

  58. Ibid., pp. 34, 38. The Hunts borrowed $896 million between January 17, 1980, and March
27, 1980.

  59. See CFTC Docket No. 85–12, pp. 33–38.

  60. SEC, Silver Crisis of 1980, p. 39.

  61. The soybean manipulation is discussed above. The wiretapping incident is discussed in Hurt, Texas Rich, chap. 12. See Bledsoe testimony in House Committee on Government Operations, “Silver Prices and the Adequacy of Federal Actions,” pp. 561–62, for allegations that the Hunts exploited supposedly confidential information received from their Penrod Drilling Company to buy drilling rights from under their competitor’s noses.

  62. See SEC, Silver Crisis of 1980, p. 35, for the loans outstanding to Merrill Lynch, Bache, and E.F. Hutton. See p. 136 for the absence of documentation at Merrill Lynch.

  63. The price of the spot silver contract (for March delivery) on March 5 was $36.05 and on March 6 it was $33.10, for a log return of −8.54%. The spot price on March 7 was $32.90 and on March 10 it was $29.75, for a log return of −10.06% (these spot prices were taken from the CRB database for March 1980 futures). The standard deviation of returns over the previous 90 days is 6.98% so neither of these is significant, but they are both responses to nonpublic information and are similar to a price run-up before a merger is announced. The cumulative log return from March 5 through March 17 (see the continuing discussion in the text) of −72.84% is significant.

  64. All prices in this paragraph refer to the spot contract on Comex as reported in the CRB database.

  65. “Precious Metals Prices Plunge as Carter Sets Anti-Inflation Speech,” Wall Street Journal, March 14, 1980, p. 38. The price of spot silver declined from $29.30 on March 12 to $25.50 on March 13, for a log return of −13.9%.

  66. The details of Carter’s program appeared in Friday morning’s newspapers, such as “Carter to Unveil Anti-Inflation Plan,” Chicago Tribune, March 14, 1980, p. 3, and “Anti-Inflation Plan to Be Unveiled Today, with Credit Curbs Expected,” Wall Street Journal, March 14, 1980, p. 3. The spot price declined from $25.50 on March 13 to $21.00 on March 14, for a log return of −19.4%.