The Hunts tried, but failed to keep their intentions a secret. “Who the hell are these Hunts?” was probably the question around the trading floor in 1974, when word got out that someone named Hunt had just taken delivery of more silver than anyone in history. In 1974, the year’s production of silver was only 245 million ounces, and even back then, the consumption was about 400 million ounces. These guys had just taken delivery of 55 million ounces. The world’s above ground supply was estimated at between 600 to 800 million ounces, and it was further estimated that only 200 million ounces was available for delivery from futures contracts. The alarm bells rang, when in April, 1974, Bunker walked into the COMEX, having never been there before. Silver was about $6 by then, up from the previous low of $1.50
In a rare interview, Bunker told a Barron’s reporter that, “Just about anything you buy, rather than paper is better. You’re bound to come out ahead, in the long pull. If you don’t like gold, use silver, or diamonds, or copper, but something. Any damn fool can run a printing press.” How true today! The old man died in November, and his will left a lot of angry kids, from three mothers, who thought they were treated unfairly. That’s the way wills are though. What the deceased said in writing, is what goes, and so it did. By March of 1975, silver was down to about $4, and the Hunt Brothers decided to try to interest foreigners in purchasing silver, to bring its price up. So they flew to Tehran to see if the Iranian Pahlevi family would be interested in joining them. The answer was “No.”
Next stop was to Saudi Arabia to visit King Faisal. Before he could give an answer, he was assassinated. No sale there. The trial for the wire tapping charge began in September, and the Hunts were exonerated by a jury of their peers. The legal fees were estimated at a million bucks, so they were cash squeezed again. Silver refused to move, so they borrowed on the silver they owned, and decided to play other commodities. This was a huge risk. If they gambled incorrectly on other markets, and silver went down, they would be in a double loss situation. All commodities futures are a gamble, and as far as I am concerned, having lost heavily once, I am not going to do it again. But they did.
Before we go a bit further, let’s analyze the past couple of weeks as far as metals prices are concerned. Silver has dropped about 60 cents an ounce, which presents a huge buying opportunity. However, those who have silver futures contract, undoubtedly had huge margin calls, and huge amounts of dollars had to be put up to meet them. I am certain that many futures holders of gold and silver, or any commodity which has slid, are hurting. Millions of futures contract investors over the years have gone bankrupt when their bet went south. While I consider it a huge buying opportunity, silver futures contract holders, I am certain, have taken a bath. Of course it will go back up, but that doesn’t change the margin calls. I hope you are not hurting, but I have been preaching this for a long time. No one can possibly know what tomorrow will bring, and a sudden correction can wipe out one’s net worth. Stay clear of futures! It is said that 95% of futures players loose. I believe it.
The Hunts bought a 61 percent control of Great Western United, the nation’s largest sugar refiner, for $30 million. This brought on all sorts of controls and exposures, since it was a publicly traded company. Great Western’s revenues promptly declined by $100 million. By late 1976, Hunt, in the name of Great Western’s trading company, took physical delivery of 20 million more ounces of silver.
It then got really screwy. Herbert went to the Philippines and proposed to Ferdnand Marcos, (remember him and his wife’s 3,000 pairs of shoes?), that Great Western silver could be sent to the Philippines, and the Philippines could send sugar to Great Western’s refineries. The Philippines would trade their silver to the Saudis for oil. With the Saudi’s having a hundred million dollars worth of silver, Great Western would have sugar to refine, and the Philippines would have oil. Sounded great, but the Philippines were in debt to the IMF, and the IMF quashed the deal. In early 1977, Great Western sold its silver for $88,500,000, which was at a nice profit, but the company still operated in the red. The Great Western Trading Company still existed, of course.
Great Western, which was the Hunts, then decided that maybe the best idea was to control a huge silver mine. After all, isn’t it better to own the mine than to mess around with the production of the mine? Big Creek mine was owned by Sunshine Mining, which was near Kellogg Idaho. After much legal hassling and bickering, the Hunts, under the name of Great Western, owned 28% of Sunshine, and had an agreement that they could purchase the rest for $15 per share. They changed the name of Great Western to Hunt International Resources Corporation, or HIRCO. Gold had become legal to own, and its price was rising. Bunker figured that if gold was going up, silver would too, so rather than staying put, he went after the Saudis again, and used his friend John Connally as his deal-maker.
By 1978, silver was on the move again, had crossed $6, and was headed for $8. Michael Boswell, the Hunt placed manager of Sunshine, turned hostile to the Hunt takeover, and said that the $15 per share agreed upon price was a floor, not the price agreed upon, and especially since silver had gone up appreciably. He wrote to the stockholders and told them “Don’t give Sunshine away.” The stockholders agreed, and the Hunts lost the mine as well as Sunshine. In the summer of 1979, thanks to John Connally, the Hunts and Saudis incorporated International Metals Investment Company in Bermuda. Its purpose was to invest in gold, platinum, and silver. The Sheiks in the outfit had a lot more money than did the Hunts, so when they decided to buy 90 million ounces of silver at an average price of $10 per ounce, on margin, the Hunts were obligated for $450 million as their half. Where would they get that many dollars? They still had the 55 million ounces, which was appreciating, so they borrowed on that to buy yes, more silver. The buying began in July with 8600 silver futures contracts bought from the CBOT (Chicago Board of Trade), and the New York Commodity Exchange, (COMEX). This placed 43 million ounces under contract for delivery in the fall. Other mysterious persons also began buying silver futures, and in two months, silver went from $8 to $16, closing at $17.88 on October 3rd.
Bother CBOT and COMEX panicked in a big way. The Hunts & Co kept buying new futures and taking delivery on the old ones. Both warehouses held only 120 million ounces, and that much was traded in October alone. It wasn’t just the Hunts which caused the price explosion, because gold went up too. Remember, Jimmy Carter was our President, and inflation was rampant, as it has been since and still is, but it was perhaps more obvious then. The Panama Canal was being given away, the hostages were in Iran, OPEC had run the price of oil way up, and a prime rate loan went for over 13%. Mortgages were at 21%, and the entire world looked pretty glum to most people. People were investing in gold and silver at the same time that the Hunts were trying to corner the world’s silver supply. Interesting co-incidence?
Was silver’s obvious scarcity, driving up gold too? Or was the world situation driving both up at the same time? The interesting fact, is that the gold-silver ratio in 1980 was 16 to 1. Today, as I write this, it is 62 to 1, and has been as high as 77 to 1, last year. The ratios are important! In the 150 years previous to 1980, the ratio was 16 to 1 or thereabouts, and was actually set as such by the Treasury’s buying and coining. 16 to 1 it was. (I can’t finish the Hunts this time, so let’s talk about the silver they were trying to corner.) Silver became so scarce and highly priced in early 1980 and late 1979, that people were turning in their flatware, silver vases, and jewelry. I was witness to this, and bought a lot of beautiful silver candlesticks and stuff for the spot price. I was selling gold and silver in daytime, and at night, we were counting silver to be shipped to the Hunts. Wild times.
Is there any reason to think that the same ratios will not resume eventually? If they do revert to history’s ratios, this means that silver will go up close to four times, percentage wise, faster than gold. Based on today’s spots, a 16 to 1 ratio would make silver about $28, to gold’s $427. I doubt that silver will ever go as high as gold, but some say that gold and the Dow may cross, and I think that is a possibility. Closed Friday. Protect yourself.