What is 'Silver Thursday'

Silver Thursday refers to the dramatic drop in the price of silver and the panic that ensued in the commodities market on Thursday, March 27, 1980. The sharp fall occurred because of the failed attempt of two brothers, Nelson Bunker Hunt and William Herbert Hunt, to corner the silver market. Unable to meet their various margin calls, several U.S. banks needed to step in with a $1.1 billion line of credit for Hunt brothers, helping to stabilize the futures markets.

BREAKING DOWN 'Silver Thursday'

Silver Thursday can be traced to the Hunt brothers’ fear of what could have become a volatile economic future. The oilmen were among the richest people in the world in the early 1960s and by 1970 their asset growth was exponential. Unable to own gold due to President Franklin Roosevelt’s 1933 law against U.S. citizens owning the precious metal, the Hunts decided to use silver, at the time roughly $1.50 per ounce, as their speculative hedge

The brothers’ anxieties only increased after Colonel Muammar al-Qaddafi nationalized their Libyan oil fields in 1973. In response, they bought futures contracts on 55 million ounces of silver; eventually, they accumulated roughly 100 million ounces. Part of their rationale was that they thought there was a risk paper money could become worthless on the open market. 

Interestingly, they chose not to sell the contracts, contrary to what a typical commodity trader would do. In essence, they decided to bet that silver was undervalued and attempted to corner the market. So, they took delivery and flew their silver to Switzerland. In the process, they created a real shortage in the market, at one point owning $4.5 billion worth of in Swiss vaults. The price continued to climb, reaching $49.84 per ounce on January 17, 1980. 

That type of speculation and profits prompted the government to step in and the Federal Reserve suspended trading in silver. But the Hunt brothers still had to honor contracts to buy at prices above $50. On Silver Thursday, March 27, the price of silver dropped to $10.80. 

Silver Thursday Aftermath

Following Silver Thursday, banks in New York gave the brothers $1.1 billion in credit to clear their obligation. Eventually they were convicted of illegally trying to corner the silver market. Each brother received a $10 million fine, on top of the millions they had to pay the Internal Revenue Service. Both were barred from future trading on the commodities market as well. 

RELATED TERMS
  1. Silver

    Silver is an element commonly used in jewelry, coins, electronics ...
  2. Silver Standard

    The silver standard is a monetary system which allows a country's ...
  3. Silver Certificate

    A silver certificate was a form of legal tender issued by the ...
  4. Lehman Brothers

    Lehman Brothers was a global financial services firm whose bankruptcy ...
  5. Lehman Brothers Mortgage-Backed ...

    The Lehman Brothers Mortgage-Backed Securities (MBS) index is ...
  6. Bullion Market

    A bullion market is a market through which buyers and sellers ...
Related Articles
  1. Investing

    Silver Thursday: How Two Wealthy Traders Cornered The Market

    Find out how the largest speculative attempt to corner the market went awry.
  2. Investing

    An Introduction To Trading Silver Futures

    Silver Futures are becoming popular trading instruments. Here is a primer on how to trade them.
  3. Investing

    Four Ways To Trade Silver Near Support

    Four ways to trade silver using ETFs or stocks as it approaches a major support region.
  4. Investing

    The world's top 5 silver mining companies

    Discover the five top silver mining stocks, which can be seen as low-cost alternatives to stocks in volatile markets.
  5. Investing

    All That Glitters: Top 3 Silver ETFs of 2018

    You can profit from the price movement of silver without physically owning the metal.
  6. Investing

    How To Buy Silver Options

    Buying silver options allows traders to attain a position in silver for less capital than buying physical silver or silver futures.
  7. Investing

    Silver Funds Struggle Despite Higher Inflation Hopes

    Inflation is set to go higher, but silver is struggling to keep up.
  8. Investing

    (BK, SIVR, AGQ) 3 Bond ETFs in the Silver Sector

    Find out about the top ETFs that track the silver sector, such as the iShares Silver Trust ETF, ETFS Physical Silver Shares ETF and ProShares Ultra Silver ETF.
  9. Investing

    Short-Term Silver Bottom? Mining Stocks Think So

    Breakouts to the upside in a number of silver mining stocks could foretell a break higher in silver itself.
  10. Investing

    Is Silver The New Gold?

    With silver on the move, gold could quickly become yesterday's news.
RELATED FAQS
  1. Does Warren Buffett invest in gold? Why or why not?

    Discover what Warren Buffett's investment stance is toward gold and silver, why he likes one of them a lot and the other ... Read Answer >>
  2. How are futures used to hedge a position?

    Futures contracts are one of the most common derivatives used to hedge risk. Learn how futures contracts can be used to limit ... Read Answer >>
  3. What burst the Mississippi bubble?

    The Mississippi bubble is actually more of a currency blunder than a true speculative bubble. Read Answer >>
Trading Center