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.