I had a coin store from 1974-1991. I lived through the boom of late 1979, early 1980.
At the peak of the market in January, we were paying 22x face value for dimes, quarters and halves. The reason we were paying this far behind the actual melt value was that the refineries were running behind. There was so much silver of various fineness being melted, the rate you could sell your silver for was well under melt.
Just before the weekend that the commodity exchanges changed the rules on how many contracts you could own, I bought two-$1000.00 face value bags of silver coins from a customer. My outlay was $44,000.00 This was on a Friday morning. When I called to sell the coins in the afternoon, I was told that they weren’t buying. :eek:
I called Sat. morning…still not buying.
When I called Monday, the commondity exchange didn’t open until that afternoon. When it opened, I could have sold my purchases for $40,000.00. I opted to wait.
When I called on Tue morning, I was offered $39,000. I sold. Best move I ever made. It only went down.
Big deal–I lost $5000.00
I didn’t complain when bags that I bought for $15,000. were worth $19,000. the next day.
It was a heady time.
The Hunt’s got screwed. The exchanges changed the rules in the middle of the game to protect themselves.
[simplistic paraphrase]
(a) accumulate lots of cheap silver;
(b) accumulate even more, and take other actions to send the message to the market that the market in (presumably finite) silver is spiraling out of control, and that you have cornered the market in such precious commodity;
(c) sell, high.
[/simplistic paraphrase]
As I understand it, the Hunts, like any other speculators, eventually planned to unload their long positions in a transaction, or more likely series of transactions, that would leave the “greater fool” (i.e., the guy chasing the bubble) holding the bag. The corollary of the “greater fool” theory is that if you mis-time it, there may be no “greater fool” around to whom you can sell off your market-cornered positions.
A cornering strategy relies on more than just “greater fool” speculation. At any given time, there are a certain number of people who have to buy silver at almost any price, for contractual reasons. When a commodity begins to rise in price, people will short it (borrow it, sell it, then buy and repay it later–hopefully after the price has fallen). If the shorts guess wrong and the price continues to rise, they still have to buy-and-repay at any price, or else go to jail.
If you can corner the entire world supply of a commodity, you can be the one selling at any price, which is a good position to be in.
The perpetual flaw in this strategy is that it underestimates the elasticity of supply. The only way to buy up all the silver in the first place is to bid up the price. As the price rises, silver starts appearing out of nowhere–people trundle their old coins into samclem’s coin shop, and at some point even start melting down treasured family heirlooms such as old war medals. You end up having to bid the price up even further than you thought, which brings even more silver out of the closet, and so on ad infinitum. Then, too, government agencies or commodity exchanges will sometimes intervene to block the strategy in various ways.
A similar attempt to corner the world gold market failed in 1873.
I’d add to what freddy said: you cannot imagine two more greedy, hoglike human beings like nelson Hunt and his brother. They were out to screw as many people as they could-and damn the poor guy who had to pay 4 times the price for his medical X-rays! What the Hunt brothers also forgot: the sharp rise in the price of silver meant that alternatives became attractive: people found that they could do without silver in many applications. Also, al lot of unused silver tea sets were trotted out and melted down. Ultimately, the Hunt brothers ran out of fools to sell to…and thei losses were huge.
X Ray film also. And the processing of radiographs created silver that was being washed down the drain by many until prices went up. I remember a company that provided a silver reclaimation device free of charge. They also serviced the device, all in exchange for the silver. When prices dropped, they dissappeared.