Anyone looking at the long-term silver price chart always asks one question: WTF happened in 1980?
The answer is one of the most interesting stories in modern financial history.
Nelson Bunker and William Herbert Hunt accumulated roughly 100 million ounces of silver between 1979 and 1980, driving prices from $6 to $50 per ounce. They believed, correctly, that fiat currency expansion under the Federal Reserve made hard assets the rational hedge. They acted on that belief aggressively and legally.
Washington panicked. Big banks and trading houses simply did not have the silver they sold in the futures market to deliver, and stood to lose an indefinite amount of money. To put it plainly, the Hunt brothers owned most of the physical silver and also owned the futures contracts. To deliver physical silver on the futures date, the firms who sold the futures had to buy it from somewhere, and that somewhere was the Hunt brothers themselves. Checkmate.
Naturally, the Commodity Futures Trading Commission and the Chicago Board of Trade changed the rules mid-game in January 1980, issuing "Silver Rule 7," which restricted new silver futures purchases and forced liquidation of existing positions, forcing the Hunt brothers to sell by law. The exchanges moved the goalposts while the Hunts were already on the field.
Prices collapsed. The Hunts faced margin calls they couldn't meet. On March 27, 1980, silver dropped 50% in a single day, now called "Silver Thursday." The brothers eventually declared bankruptcy in 1988.
The entire apparatus, the CFTC, the Fed, the major banks holding short positions on silver, had direct financial interests in stopping the Hunts. The banks short on silver lobbied the government and got the rules changed in their favor. You never hear that part emphasized.
Property rights mean nothing if regulators can rewrite market rules the moment a private actor threatens well-connected institutions. The Hunt brothers didn't destabilize the monetary system. They exposed how fragile a debt-based system looks when real money starts moving.
H/T to
@MiningVisuals for this excellent graphic.