OK, this should finish it! It all ended rather quickly, as a matter of fact. As I said in the previous piece, the warehouses of both the CBOT and COMEX only had 120 million ounces of physical silver in them, and the Hunts & partners were buying silver contracts like they were going out of style. On top of that, they were taking DELIVERY. How could the COMEX and CBOT deliver all these contracts, when they had so little in their warehouses? They obviously were approaching a situation where they would be unable to do so. So they changed the rules in mid-stream. In late 1979, the CBOT changed its rules, and stated that no investor could hold over 3 million ounces of silver contracts, and also the margin requirements were raised. Further, all contracts over 3 million ounces had to be liquidated by February, 1980.
Not fair? You bet! Obviously, a shortage of physical was developing, and developing fast. The COMEX and CBOT were doing then, as they are still doing now, and that is selling futures contracts on things which they don’t possess, and which may not even exist. If there wasn’t a shortage, why were they panicking? If there was no shortage, why were the prices going up so quickly? Didn’t matter. He bought more! On the last day of 1979, the price of silver was $34.45 At this point, they held 40 million ounces of physical in Switzerland, and 90 million ounces owned jointly through International Metals. Not only that amount of physical, but International Metals had contracts for 90 million more ounces, due for delivery in March 1980, from the COMEX alone. Brother Lamar, also had taken a $300 million silver position in late 1979 also.
Can you imagine the panic, especially at the COMEX? Not only did they not have the silver to deliver, as the contracts called for, but as it later turned out, a lot of big traders were short silver, and were losing their collective shirts. On January 7th, the COMEX changed its rules also, which was such a rotten, crooked deal, that it has never been equaled in futures trading since, although in the future, they may do it again. This change of rules was (naturally!) upheld by the CFTC. Now, just for a minute, consider this possibility before we go further.
Here we are at the beginning of April, 2005, and silver has gone from about $4 to well over $8, and retreated to about $7.20. Inflation rages, thanks to endless government spending at home, plus hundreds of billions in Iraq and Afghanistan. The dollar is proliferating like cockroaches in the South Bronx. The more they print, the less they will be worth, the higher prices will go, and the more people will get out of dollars, and into other things, such as silver and gold. Why silver and gold? Because they are historic money, compact, etc. You know the details, so I won’t rehearse them to you. As the demand for these metals goes up, and it is already doing so, the physical supplies will have to increase, or the prices will go up, and go up big. It takes a lot of time and money to bring a new mine on line. A lot of time and money. The demand could go up quickly, as it did in late 1979 and early 1980. Far faster than any mine could be brought on line. Take oil, as an example.
Oil is becoming a scarce commodity, just as silver was in 1980. A lot of oil is in ANWAR and Iraq. It will take years for the oil in ANWAR to be brought on line, and the Iraq oil is being sabotaged every day, so it may not be available for years either. Saudis and the rest of OPEC are pumping as fast as they can, and China and India are gulping it by the millions of barrels. Is oil going to go up? I think so. Should you buy futures in it? I think not, as they might change the rules again, and you can’t take delivery of it anyway. How about silver futures? They can change those rules overnight again, just as they did in 1980. Suppose millions of people begin buying physical silver, and order delivery of their futures contracts? There just isn’t that much around to satisfy those demands. The warehouses, just like in 1980, have maybe half or less as much physical, as would be required to fulfill delivery orders. The same exact thing could happen again. Demand, and no supply. Oil and silver could both do the same. If you have silver contracts and want to take delivery, call me. It’s easy to convert them into hundred or ten ounce bars, or bags of US silver coins.
On January 7, 1980, the COMEX changed its rules in mid stream and said that there would only be allowed ten million ounces of contracts per trader, and all contracts over that amount had to be liquidated before February 18th. On January 17th, silver hit $50 per ounce, and undoubtedly would have gone higher, if Bunker hadn’t been double crossed by the COMEX and CBOT. The double cross continued. On January 21st, the COMEX SUSPENDED TRADING IN SILVER! Further, they would only accept liquidation orders. Needless to say, with the markets frozen, silver dropped $10 almost immediately. While the price was at $50 or thereabouts, Americans were selling their silver flatware, vases, candlesticks, and every bit of silver they could scrape up. In all, 22 million ounces of scrap came into the market. In February, the Hunt Group took physical delivery of another 26 million ounces.
With the COMEX and CBOT double cross, silver went down, and by March 14th it was down to $21 per ounce. International Metals still had 60 million ounces worth of silver contracts, all on margin, and the margin calls were then $10 million a day. They had bought contracts at $35, and the price had plunged to close to half, thanks to the COMEX and CBOT. At $10 million a day, it isn’t hard to go bust! By March 25th, they ran out of cash, and couldn’t meet their $135 million margin call. They sold $100 million dollars worth of silver in one day, and the price kept going down. On March 27th silver opened at $15.80, and closed at $10.80. The Hunts owed $1.5 BILLION DOLLARS.
It wasn’t just the Hunts that were at risk, but the shorts and “establishment,” which consisted of the many big bankers and brokers, who just didn’t like the idea of a man cornering the market in anything, and actually thinking about starting his own silver currency. Everyone lost, it seemed, except maybe the insiders who had been saved in their short positions. Those who thought, rightly, that silver had a long way to go up, lost, even if they had bought only physical rather than contracts. Their physical went down, and it has never yet recovered. Those who bought paper silver on contracts, lost big, because all their dollars were gone, and a lot more demanded by the brokerages probably. All lost, thanks to the COMEX and CBOT changing rules and screwing Bunker Hunt and associates out of their honest dealings.
Today, as far as I know, no one is trying to corner the world’s silver supply, but there’s a lot less silver around now, than there was 25 years ago. Not only that, but a lot of new uses have been discovered for it. As far as I know, Bunker Hunt is still alive and well in Texas, and although I only met him briefly in 1980, I am sure he is a devoted family, Christian man. Silver, I think, will zoom up again, thanks to the failing dollar, not because of Bunker Hunt. It isn’t just silver that will go up, although it may go up faster than other items. Gasoline, butter, tires, and grass seed will go up, and are going up in dollars every day. The items aren’t worth any more. It’s just that the currency is worth less. It’s the same silver at $4.20 or $50. It’s the same Pepsi at a nickel or $1.50. The money is simply going down.
Silver is a good way to hedge yourself against inflation. A “hedge,” either literally or financially, is a protection against things. Silver is a marvelous hedge! Protect yourself.