What is Hoarding
Hoarding is the purchase of large quantities of a commodity by a speculator with the intent of pushing up the price. A speculator hoping to increase the price of a commodity can do so by leveraging demand for it by buying physical inventory as well as purchasing futures contracts for that commodity. Hoarding can also take place in financial instruments like bonds.
BREAKING DOWN Hoarding
Hoarding is basically no different than buying and keeping a commodity. However, if the speculator's intent is to corner or otherwise monopolize a commodity, then it may be considered an illegal act. In 1933, owning more than $100 worth of gold became a criminal act called hoarding, but holding/hoarding as much gold as you can afford to buy was legalized again in 1974. Unfortunately for traders and regulators, it is not always easy to distinguish hoarding from a deliberate intent to manipulate the market.
Famous Examples of Hoarding
One of the most famous cases of hoarding occurred in the silver market in the early 1980's when three brothers, known as the Hunt Brothers, tried to hoard silver to corner the market. There are several narratives available about their efforts, but the abridged version tells us that they started small in the early 1970's when silver was trading for around $1.50 per ounce.
Over the next 10 years they purchased most of the physical silver inventory that was available on the market and were hoarding it in various central banks around the world. By the mid-1970's they had moved into futures contracts that gave them the right to buy 55 million ounces of silver. In early 1980, silver reached a high of $49 per ounce, but the Hunt Brothers were no longer able to borrow the money they needed to keep buying silver and pushing up the price.
Eventually they had to start selling, which created a market panic and crushed the silver price. By the time it was over, the Hunts narrowly avoided bankruptcy and financial ruin.
Yasuo Hamanaka, infamously known as Mr. Copper, was the chief copper trader at Sumitomo Corporation. He spent eight years in jail after more than 10 years of off-the-book copper deals in the 1990's that led to more than $2.6bn in losses. At one point he held/hoarded so much of the metal — as much as 5% of world supplies — that traders dubbed him Mr. Copper and The Copper King.