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Silver-Market Manipulator Nelson Bunker Hunt Dies At 88; Two Traders Look Back

By Debbie Carlson of Kitco News
Wednesday October 22, 2014 1:38 PM

(Kitco News) - Nelson Bunker Hunt, one of the two Hunt brothers who tried to corner the silver market between 1979-80, died Tuesday at age 88, according to the Associated Press.

Two veteran traders Wednesday recounted what they remember as “exciting” and “interesting” times when silver prices were rising sharply back then, only to eventually collapse. The story of the Nelson and Herbert Hunt trying to corner the silver market is probably one of the most high-profile cases in commodities and led to drastic changes in regulation that remain in place today.

Nelson Hunt died in Dallas following a battle with Alzheimer disease, AP said Wednesday, citing his brother, W. Herbert Hunt.

The Hunt family initially made their money in oil. Texas oilman H. L. Hunt founded Placid Oil, and Nelson Hunt built on the family’s petroleum holdings. Nelson Hunt found oil in Libya, but it was later nationalized by Moammar Gadhafi.

In 1979-1980 the Hunt Brothers tried to corner the silver market and pushed up prices from about $6 an ounce to over $48 before the Comex exchange changed the rules on leverage and put heavy restrictions on commodities bought on margin. The Hunt brothers lost over $1 billion in the incident.

In 1985 the Commodity Futures Trading Commission accused the Hunt brothers, along with others, of illegally manipulating silver prices during 1979 and 1980. At the time they denied wrongdoing, but in 1989 they agreed to pay up to $10 million in penalties and accept a ban from trading commodities.

According to the AP story, Nelson filed for bankruptcy protection in 1988, and much of the money was liquidated to pay creditors and the Internal Revenue Service.

Market Participants Remember Those Times

George Gero, vice president with RBC Capital Markets Global Futures, was a floor broker at the time in the Comex.

“It was interesting because whenever we saw brokers from ContiCommodities come into the ring, the silver price would go up a few pennies. Just as they were coming into the ring it would go up just a few pennies. Even before they started buying,” Gero said.

ContiCommodities was the firm that handled the Hunt Brothers trading. It was also charged by the CFTC and is no longer operating.

When trading was floor-based, it wasn’t unusual to see market participants pay attention when big traders come to the floor to trade, but this was different, Gero said.

“In Chicago what happened, you wait to see somebody like a Richard Dennis to see if he’s going to start buying or selling. You don’t start buying as you see him coming toward the ring. That’s a major difference. What if he comes in to be a seller? But we knew Conti was always only buying,” Gero said.

Pete Thomas, senior vice president, Zaner Precious Metals, was just starting out trading metals in the Chicago Board of Trade pits, a broker filling orders in the back-month contracts when the Hunt Brothers entered the markets. At the time, the CBOT had precious metals futures contracts.

“It was exciting. I mean, it was a market that had been sitting at those lower levels for as long as anybody could remember,” Thomas said. “Volumes were picking up, too.  One of the brokers would give the sign that a call from Texas had come in and we’d get orders for a thousand contracts. Back then I was doing 125 orders a day.”

Thomas said the Hunt brothers were buying enough to support prices and changed the outlook on the markets.

“What happened was as the technical charts changed and started to look fantastic, other people got into, too, the technical chartist, momentum players. Silver put in that long base, everyone went ‘holy cow.’ The market could have been Guatemalan cockroaches -- didn’t matter because the charts looked good,” he said.

Gero said when prices were rising, people didn’t get the sense there was something nefarious going on.

“We never felt they were cornering the market. We felt it was more international. Swiss buying, Conti buying - we thought there was something going on in the world. The market was getting incorrect signals, especially when we found that one of the problems, the reason for the spikes up, was lack of deliverable supply,” Gero said.

Thomas said it’s likely the Hunt brothers were able to stay so long in the markets because there were several markets to trade.

“In the old days, you could trade Chicago, New York, London and then Paris. And then it would come around through Australia. San Francisco had a metals trading exchange…. There were a few guys trading around the clock, laying off their positions,” he said.

No one would know what someone else was doing, both Gero and Thomas said.

“What you worried about back then was a guy with a good credit rating would have three or four different accounts at three or four different houses who did not exchange information,” Gero said.

Gero said sweeping changes came because of the Hunt brothers’ episode.

“Now you have a lot more regulation, a lot more reporting requirements…. (You have) uniform deliverable supply, you have regulations and how much you can hold, who can hold it, regulations that (don’t allow trading on) margin in the spot month, it has to be full money. Intentions to make/take delivery have to be given to the exchanges all the time. (There’s) first notice day. (There are) a lot of different things now,” he said.

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By Debbie Carlson of Kitco News; dcarlson@kitco.com
Follow me on Twitter @dcarlsonkitco

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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