As the Hunt brothers continued to take deliveries of silver, they generated billions of dollars in silver demand which inflated silver’s value to more than fifty dollars per ounce. The siblings even borrowed against their solid reputation to take out more futures, at lower interest rates than most investors could obtain. Simultaneously, they were able to convince others to invest in preparation for the coming devaluation of the dollar.
As the brother’s short silver position ballooned to four and one-half billion, others wanting to take advantage of high silver prices raced to sell their physical silver assets. By this time, less than one-third of the silver market remained beyond the Hunt’s control.
The Federal Reserve, seeing what was happening, began to discourage banks from speculative lending. Silver began to drop as fear that the Hunts wouldn’t be able to meet margin calls began to spread. The first missed margin call came on March 27, 1980. The Hunt’s retained much of their wealth, even after being fined and forced into bankruptcy to satisfy creditors.
As world financial crises continue to create fiscal havoc, many believe that large investment entities have recently attempted to manipulate the silver market. Apparently unsuccessful, silver continues its usual volatile path, roughly following the market track of gold.
Although today’s whistleblowers have been largely dismissed, a story of actual silver commodities manipulation occurred in 1980. Ultimately, the scheme was unsuccessful, but nonetheless provides an example of how precious metals manipulation might be attempted.
The sordid tale begins with the death of famed oil magnate, H.L. Hunt in 1974. His demise left billions to sons, Nelson and Herbert, who began investing in the commodities market. The pair believed that after the oil crisis of the 1970s, inflation would drive prices up, as silver became safe haven investment, much like gold.
The brothers, being flush with cash, began to purchase not only physical silver, but also futures contracts. They then began to close out the futures contracts with payments of physical silver, rather than cash.
According to the recently released “World Silver Survey,” investors are becoming an increasingly important factor in silver price fluctuations. As the demand for raw materials declines, investors are playing a more pivotal role in silver market motion.
The demand for physical silver for production of silverware, and accomplishing photographic processes has been on the decline for many years. Demand for silver jewelry dropped by approximately ten percent in 2011. However, the report, commissioned by the Silver Institute shows general fabrication demand for silver declining in all categories, except metal and coin production. These categories constitute investments, says Thomson Reuters GFMS, which produced the annual report.
Total worldwide industrial silver demand decreased in 2011, for all countries, except China. Meanwhile, silver production grew in Mexico, Poland and China, increasing world silver supplies by about three percent.
Surprisingly, 2012 investment interest in silver is displayed mostly by smaller purchasers. If economies heal in the coming year, risk appetite for silver may be revived.
As investors contemplate the best precious metals acquisition strategies, many will wonder if putting their money in mining stocks is a prudent move. Although mining stocks can be profitable short-term, bullion wins out as a long term investment.
Often stocks in precious metals mining companies rise much faster than the price of bullion, but when precious metals markets plunge, bullion is likely to move less precariously than mining stocks. Mining shares, just like other paper financial instruments carry inherent risks. The largest of these risks is that mining stocks can become completely worthless, while this eventuality is unlikely for silver or gold bullion.
Other risks for mining stocks are changes in mining regulations, labor disputes, bad management and structural demise. Although a mine may have promising potential, this can easily be eclipsed by bankruptcy, surging production costs, or political and economic issues. Introduction of the human factor is the greatest danger to paper financial instruments, as we’ve recently seen running rampant in our current crisis economy.
Schaumburg, Illinois was the site of last week’s “Central States Signature U.S. Coin Auction.” Among the treasures offered to auction goers was a one cent experimental coin minted in 1792. The 1792 Silver Center cent was made of one-fourth cent worth of copper, and had a silver plug in the center that was worth three-fourths of a cent. The purpose behind the coin’s design was to allow a lighter weight coin for practical use as legal tender. At the time, a penny made entirely from copper would have been too heavy for use in trade!
Henry Voigt, who held the title “Chief Coiner,” designed the coin, which is arguably one of the most historically significant in US coin history. Extremely rare today, only fourteen of these coins survive by official count. The Silver Center cent was the first coin ever struck on the United States Mint grounds, further enhancing its historic importance. Silver Center cents were never produced for circulation.