The Brothers Who Cornered Silver — and Lost to a Rule Change

In the summer of 1979 silver traded around nine dollars an ounce. By 17 January 1980 it settled at $48.70 on COMEX, and the next day the London fix printed $49.45 with a COMEX intraday high above $50. Ten weeks later it was $10.80.

Behind most of that move were two brothers, Nelson Bunker Hunt and William Herbert Hunt, heirs to a Texas oil fortune, who had decided that paper money was being destroyed by inflation and that silver was the only honest way to hold value. They were not entirely wrong. What happened to them anyway is the most useful thing in this story.

The position

By 31 December 1979 the Hunts and their Bermuda-registered partner vehicle IMIC controlled about 195 million troy ounces of silver, worth roughly $6.6 billion at year-end prices and more than $9.8 billion at the January peak. Crucially, about half of it was not metal at all — it was long futures contracts, some 19,350 of them, meaning every one-dollar move in silver produced roughly $97 million of cash flowing in or out of their margin accounts.

The concentration was extraordinary. Their net long futures position was about 9% of the combined open interest on COMEX and the Chicago Board of Trade, but it amounted to roughly 76% of the certificated silver stocks those two exchanges actually held. The regulator's later accounting was blunter still: in the March 1980 contract alone, the long positions of the Hunts and an allied group came to 122% of the total silver sitting in licensed depositories. On paper, more silver had been promised for delivery than existed to deliver.

That is what a corner looks like. It is also what a target looks like.

The rule change

On 7 January 1980, COMEX invoked emergency authority and imposed speculative position limits on silver for the first time. The exchange's own stated reason was the concentration itself: it had become concerned about “very large long positions in the silver market in the hands of several entities which apparently seek to use the futures market as a vehicle to acquire silver bullion,” and noted that as available supply shrank, “previously acceptable magnitude of positions became unacceptable.”

Two weeks later came the decision that actually ended it. On 21 January 1980 COMEX declared silver futures liquidation only. You could close a position. You could not open one. With one exception, reported at the time: short sellers were still permitted to sell in order to make delivery. The Chicago Board of Trade followed the next morning, and ordered that all positions in the February contract be cut by 25% a week for four weeks. On 23 January COMEX instructed brokers to aggregate the four Hunt brothers' accounts with IMIC's, retroactively treating the family as a single trader for limit purposes.

A market in which buying is forbidden and selling is compulsory has only one direction available to it. The chairman of the CFTC said so out loud that year: “Changing the position limits caused the silver bubble to burst.” The president of COMEX, asked whether the rules had been altered to suit one side, gave the answer every leveraged trader should have tattooed somewhere visible: “They know we are self-regulated and the rules can change.”

Margin, in both directions

Margin did the rest. On 30 December 1979 the highest silver margin on either exchange was $30,000 per contract — against a contract then worth more than $170,000. On 4 February 1980 COMEX doubled it to $60,000, with a further increase ten days later. Measured from the start of the run, margin on a silver contract rose roughly thirtyfold. Nothing about the Hunts' thesis changed. The cost of holding it went up by a factor of thirty.

And then the same lever moved the other way. Bache Halsey Stuart Shields, the broker carrying the largest slice of the Hunt exposure, was in trouble: it had $233 million of unhedged bullion loans out to the Hunts and IMIC, sitting on net capital of roughly $38 million above its regulatory minimum, and was absorbing $22.5 million a day in clearing charges while the Hunts paid nothing. On 25 March Bache asked COMEX for relief. On 26 March the exchange cut silver margin requirements by a third, freeing about $80 million for Bache. The SEC's own staff report later described the episode as evidence that “commodity exchanges can manipulate margin requirements to benefit particular market participants.”

Margins went up to break the customer and down to rescue the member, inside ten weeks, under the same rulebook.

Silver Thursday

On 26 March 1980 the Hunts told Bache, Merrill Lynch and ACLI that they were simply going to stop meeting margin calls. There was no more cash and no more silver to post. The next day, 27 March, spot silver closed at $10.80, down from $29.75 fourteen trading days earlier — roughly a two-thirds fall in under three weeks.

A detail from that day is worth pausing on, because it explains why you will see wildly different numbers quoted for “how far silver fell on Silver Thursday.” The exchange held back-month futures inside a $1-per-day price limit while letting the spot month fall unrestrained. By 27 March the gap between spot and the quoted back months had reached $13.26 an ounce. There was no single price of silver that day. There were two, thirteen dollars apart, depending on which contract you happened to be holding — and only one of them was allowed to tell the truth.

The systemic damage came close. Paul Volcker, then chairman of the Federal Reserve, testified that he took an urgent call at midday on 26 March and immediately alerted the CFTC, the SEC and the Treasury, because “some of those institutions were placed in jeopardy, and their failure could in turn have triggered financial losses for others.” What followed was a $1.1 billion bank facility to Placid Oil, the Hunts' oil company, secured on its wells, refineries and pipelines. Volcker did not arrange it; he declined to object to it, on the condition that the borrowers stop speculating in commodities for the life of the loan. By 31 May the silver debts were paid and the remaining metal had been refinanced at $14.05 an ounce, a little over a quarter of the January high.

Eight years later

The story did not end with a margin call. In 1985 the CFTC concluded its investigation alleging that the brothers had manipulated and attempted to manipulate silver prices. On 20 August 1988 a federal jury in New York found Bunker, Herbert and Lamar Hunt liable for conspiring to manipulate the silver market and awarded the Peruvian state minerals company Minpeco more than $130 million. A month later, Bunker and Herbert filed for bankruptcy. A family fortune estimated near $5 billion in 1980 was under $1 billion by 1988.

And the regulatory legacy is the reason position limits exist on your screen today. In October 1981 the CFTC adopted the rule requiring exchanges to set speculative position limits across futures markets, writing in the proposing release that limits “diminish the possibility of accentuating price swings if large positions must be liquidated sharply in the face of adverse price movements.” Every position limit a retail futures trader will ever bump into traces back to these two men.

What it actually teaches a small account

The temptation is to read this as a story about billionaires and dismiss it. Strip the zeros off and the mechanics are the ones that empty ordinary accounts.

Being right is not a position. The Hunts' core thesis — that silver was cheap, that paper currency was being debased, that physical supply was thin — was defensible, and silver did eventually matter. It bought them nothing, because a leveraged position is liquidated on someone else's schedule, not on the schedule your thesis needs.

The rulebook is a market participant. Exchanges raise margins in volatility, cut position limits, impose liquidation-only sessions, halt trading, and widen or narrow price limits. None of that is a conspiracy against you; all of it is written down in advance and all of it can arrive on a day you are already stressed. The only defence is to hold a size that survives a rule change you did not plan for.

Concentration is the risk that eats every other risk. One instrument, one thesis, one direction, financed. Every serious blow-up in this section — LTCM, Archegos, Barings — has the same shape.