Last week we allowed ourselves a quick chortle about the Bre-X gold mining scam of the 1990s, which left an awful lot of people in Canada and Indonesia with egg on their faces. But, looking back, the funny thing was it was always bound to end up with the truth coming out as the deception was realised. Like the best Ponzi scams, the whole point of the operation was that the central characters neededto be out of there and gone before the dust had settled and the people with the handcuffs arrived.
This week’s little episode takes us right back to 1980, and it concerns the last time the silver price hit $50 per ounce – the level it almost re-attained in 2011, actually, but tht’s another story. And it revolves around Nelson Bunker Hunt and his brothers, who had the temerity to try and corner the world’s silver supplies. And were duly cornered red-handed.
But tell that to kids these days and they just wouldn’t believe you….
The world’s richest man
They say the easiest way to make a small fortune is to start out with a big fortune and take it from there. And the Hunts certainly had the beginnings right. The son of legendary Texan oilman H.L. Hunt, Nelson Bunker Hunt had already made a quick ten billion out of Libya’s luxuriant oilfields by the time he was 40. At which point an ungrateful Moammar Gaddafy had seized the lot and left him with just the stub end of a fortune originally estimated at $16 billion. Typical.
However, Nelson and his brother William Herbert Hunt had a plan to make it back into the big time. They started buying silver at a mere $1.50 per ounce, in such vast quantities that they eventually had $4.5 billion worth of metal sitting in their vault. Which was quite a large proportion of the world’s liquid stocks, really, and enough to push the spot price to $50 – mostly because the markets were caught like rabbits in the headlights. The Hunts were frightening everybody.
But why did they do it? You might well ask. Bunker Hunt still insists today that he sincerely believed that fiat currencies were about to crash, and that he needed to be in solid assets. But the prosecutors who eventually charged him with criminal market-rigging were less generous. And the Bunker Hunt scheme for world domination was foiled overnight by a rule that simply imposed limits on the amount that any trader could buy in a day.
That was what burst the bubble. Within weeks, silver had dropped nearly 80% to just $11 as Bunker Hunt found he couldn’t meet his margin calls. In 1988 the brothers were convicted of conspiracy, and bankruptcy soon followed.
So thank goodness for Hunt Snr’s $200 million legacy, which had thoughtfully been placed in trust and therefore out of reach of the courts. Nice one, pop. Bunker Hunt is enjoying a well-bunkered retirement in sunny Dallas.