How Influential Is The Silver Market?

silver market
by: Ben Tseytlin - on Gold & Bullion

Silver is arguably the most overlooked and underrated metal in the world. The difference between its price and that of gold is substantial, and yet it shouldn’t be. Silver is a critical industrial material which is used from medical devices to the manufacture of appliances and emerging tech, which raises a simple question: just how influential is the silver market?

Three Billionaire Brothers Nearly Cornered The Market

During the Great Depression, the U.S. government made gold illegal to own. Americans who were caught with it could be fined or sent to prison. Yet silver, as is so often the case was ignored, until the 1970s, nearly half a century later. At the time, the Vietnam War was in full swing and the American dollar had recently been removed from the gold standard. Since gold was still illegal to possess, the ultra-wealthy needed a way of protecting their hard earned wealth from inflation, and silver was the logical choice.

The downside to being a billionaire is that once the currency is no longer backed by precious metals, any cash holdings you have in your possession can be rapidly eaten up by inflation, even if they are in a bank account. This is why many of the world’s richest people do not keep large amounts of cash on them (or in a safe or vault). These men and women know instinctively that due to inflation the value of their cash can drop rapidly. Therefore, most of the super-rich keep their wealth in land, real estate, stocks and precious metals, things that cannot be printed out of existence.

In 1974, Lamar, Nelson and William Hunt, three brothers whose combined net worth made them billionaires, decided to take a huge position in silver, which was estimated at 55 million ounces. The level of silver that they acquired was so vast that it consumed around ten percent of global supplies and drove up prices rapidly. By 1979, the Hunt Brothers had incredibly amassed between one hundred and fifty and one hundred and eighty million ounces, which made them the biggest holders of silver on the planet.

The Jewelry Industry And COMEX Respond

Tiffany’s, which is one of New York’s most powerful jewelry houses, took out an ad which was full page complaining about the issue. The Hunt Brothers were accused of hoarding, and Tiffany’s highlighted the importance of silver in everything from tea sets to photography and tableware.  The Hunt Brothers were so leveraged that they were able to utilize their silver stock in the form of collateral.

The COMEX responded by cracking down and limiting their position size to a maximum of three million contracts. This led to a margin call on the paper holdings they held which ended their move. This historical incident highlights the power of the silver market, and the ability of a single high net worth individual (or family of them) to influence it. Silver’s current price should be taken with a grain of salt, as it does not reflect reality. Its fundamentals and track record make it clear that it should be much higher than it is.