The Day the Hunt Brothers Capped the Price of Gold (Part I)

Forty-four years ago, something extraordinary happened in the metals markets.

For the first time in American history, gold and silver were no longer tethered to the U.S. Dollar – and the stage was set for precious metals to enter one of the biggest bull markets we’ve seen.

Today, we’ll look at some of Mike’s incredible research on two men who have arguably had a bigger impact on the precious metals market than anyone in history.

But first, let's look into the latest news that's shaping the world of gold and finance.

Gold Prices Will Peak at $2,300/oz in 2025, According to J.P. Morgan Research
In a new research report, JP Morgan says Fed interest rate cuts and falling U.S. real yields will once again become the key drivers behind gold prices in 2024. Gold prices are expected to dip in the near term before climbing to new highs later in the year, with a forecasted peak of $2,300/oz in 2025.

Corporate Debt Defaults Up 80% in 2023
In 2023, corporate debt defaults experienced a significant surge, as reported by S&P Global Ratings. The total number of companies unable to meet their debt payment obligations reached 153, marking an 80% increase from the 85 defaults recorded in the previous year. This rate of default is the highest we've seen since the Covid-19 pandemic in 2020.

Fed Official Says Rate Cuts Likely Coming Soon
A senior Federal Reserve official, Christopher Waller, expressed growing confidence on Tuesday that inflation will revert to the Fed's 2% target this year. Following suit with recent insights from other high-ranking Fed officials, Waller's comments reinforce expectations that the central bank is poised to reduce its benchmark short-term interest rate, likely by mid-year.

Which ancient kingdom is credited with minting the first gold coins for general circulation, known as the Croeseid, around 550 BC?

A. The Roman Empire
B. The Kingdom of Lydia
C. The Persian Empire
D. Ancient Egypt

Scroll to the bottom of this email for the answer...

The 1970s witnessed a phenomenal bull rally in precious metals, fueled by a number of historic events: President Nixon's abandonment of the gold standard, the transformative Coinage Act of 1965, and rampant inflation for much of the decade.

However, the Hunt Brothers' effect on the silver and gold markets arguably had a bigger impact than any other individual in history. Today, we delve into the intriguing saga of these two brothers who audaciously tried to monopolize the silver market. Join us as Mike Maloney shares his research, revealing some fascinating, lesser-known details about their daring venture.

The Day the Hunt Brothers Capped the Price of Gold (Part I)

Written by: Mike Maloney  

Any silver investor worth his salt knows the highest price silver ever reached was $50 an ounce. It is said two Texas brothers, Bunker and Herbert Hunt, drove the price that high by buying up so much silver they “cornered” the market. At one point, the Hunt Brothers owned rights to more than half the world’s silver supply.  

In fact, the Hunt Brothers were sacrificial lambs, used by the Federal Reserve, in collusion with two of the world’s largest and oldest commodities exchanges, COMEX and Chicago Board of Trade (CBOT), to cap the price of gold.

The Hunt Family Fortune

Bunker and Herbert Hunt were sons of H.L. Hunt, a self-­made billionaire who got his grubstake playing poker, then made his fortune in Florida real estate, becoming at the time of his death in 1974 the richest man in America.  

H.L. sired 15 children by three different wives, many of his heirs becoming wealthy in their own rights.  

Bunker’s quest to find his fortune in the oil business got off to a rocky start, as he lost millions from unproductive drilling in Pakistan. But one of his Libyan holdings turned out to be the largest oil field in Africa at that time. Coupled with successful business ventures in real estate, cattle, sugar and pizza parlors, by 1961, Bunker’s wealth had surpassed that of his father.

The Rise of Silver

The period leading up to silver’s price spike was characterized by inflation, stagnant economic growth and political upheaval in the United States. In 1965 President Lyndon Johnson increased deficit spending to finance his Great Society social welfare programs, tax cuts, and an unpopular Vietnam War. Johnson’s increased government spending was intended to boost employment and allow steady, mild inflation that would spur economic growth.

But inflation quickly snowballed out of control. In 1971, faced with the reality that the U.S. Treasury did not have enough gold to redeem all the dollars held by foreign governments and investors, President Richard Nixon pulled the United States off the Bretton Woods monetary system. Under the international Bretton Woods currency agreement established in 1944, all world currencies were keyed to the U.S. dollar, which was to be backed by gold. Nixon’s action effectively created a worldwide fiat currency system that continues today.

Oil shortages, created by an embargo inflicted on the United States by the OPEC cartel of oil­-producing nations, and real food shortages fueled the public’s fears that the American economy was in crisis. By the late 1970s, prices on consumer goods were spiking upward, and inflation had become public enemy number one.

Enter oil tycoon Bunker Hunt and Bunker’s brother Herbert, who ran the family business, Hunt Oil, and invested in real estate. Lamar, the third Hunt brother, was busy organizing the American Football League and the Kansas City Chiefs at the time.

The Hunt Brothers were inveterate anti­communists and considered themselves defenders of the American Way. But Bunker, the unofficial honcho of the Hunt cowboys, believed he was fighting a losing battle against the entrenched global governmental and financial establishment.

In 1973, Bunker suffered the nationalization of his rich Libyan oil field by the dictator Moammar Ghadafi, leaving him suspicious of government intervention and embittered that the U.S. government didn’t do more to help him.

Now the Hunts watched as their financial assets were threatened by expanding inflation and the declining value of the dollar, trends they blamed on the U.S. government’s lack of fiscal restraint. With the family’s wealth being steadily eroded by skyrocketing inflation, Bunker needed an asset to which he could safely anchor his family oil fortune. At first, he thought of gold, history’s safe haven investment of choice. But in 1973, U.S. citizens were not allowed to own gold, and Bunker thought the gold market was too easily manipulated for government purposes.

The Hunts did not advocate a return to a gold­-backed currency system. But they knew that physical assets like commodities would hold their value better than paper financial assets, which would inevitably lose value over time. Their holdings of soybeans and oil had performed extremely well in the early 1970s. After researching commodity markets, Bunker chose silver as the anchor to which he would hitch his family’s fortune.

During the early 1970s, silver was selling for $2 an ounce. With total world silver production dropping and industrial silver consumption exploding, government and private silver sales were the only thing filling the widening gap between supply and demand. Once those hoards of government­ owned and privately held silver ran out, the shortfall between silver production and demand was certain to drive the price of silver skyward.

But Bunker and Herbert were not looking for mere short-term speculative profits. They were more concerned about long-term survival and preservation of their family’s wealth than they were with adding a few more paper dollars to their vast sums of rapidly depreciating currency. Bunker Hunt was well versed in Germany’s disastrous hyperinflation of the early 1920s, and he was genuinely concerned about going broke holding paper assets. What good would his estimated net worth of $3 billion to $4 billion be if those billions of paper dollars fell to their intrinsic value — zero?  
The Hunts decided to invest in silver futures, a type of investment that is both convenient and allows leveraging.  

In leveraged investments, the investor deposits funds, or margin, with a broker. The investor can then purchase (or sell) futures contracts worth as much as 15 times the margin value. In that case, an investor’s returns would be magnified by 15 times. In other words, an investment of $1,000 (the margin) would allow the investor to purchase a $15,000 futures contract. If the contract made a 10% gain (now $15,000 x 1.1 = $16,500) the investor would have made $1,500–a 150% return!  

But leverage is a double-edged sword: A 10% loss in the $15,000 futures contract would wipe out the investor’s $1,000 margin and put her $500 underwater. Even billionaire investors like the Hunts were susceptible to the downside of leveraged investing when the silver market went south.

Futures contracts can be settled in two ways, either with cash or by taking physical delivery of the commodity. Although the vast majority of futures contracts are settled in cash, the Hunt brothers — aware that cash was continually losing value due to inflation— insisted upon physical delivery of their silver as a hedge against the government currency monopoly and global turmoil.

At the time Bunker Hunt began buying silver, the price stood at about $1.50 per ounce. By early 1974, the Hunt brothers had purchased futures contracts for approximately fifty-five million ounces of silver.

Circle K Cowboys Deliver the Goods

At this point, the Hunts were sitting on a mountain of silver, roughly 9% of the world’s entire supply, with no place to store it. Obsessed with survival and salvation, they needed a place so secure that it would be immune to political strife, war, and social upheaval. Switzerland, with its legendary secret banking system, was the only place to store their silver mountain. The Hunts chartered three Boeing 707 airplanes, each 150 feet long, to fly their silver to Europe.  

With the secrecy necessary for the operation, it was no surprise that the Hunts wanted security as well. It began with a shoot­out at the Circle K ranch, the Hunt’s 2500­ acre spread located east of Dallas. As straw boss for the operation, Randy Kreiling, brother­-in­-law to Bunker, recruited a dozen cowboys from the Circle K by holding a shooting match to see who was the best shot. The winners would receive a special assignment: riding shotgun on the Hunts’ hoard of silver to Switzerland.

One by one the huge airplanes took off from Dallas, shining, appropriately, bright and silver in the moonlight. Broad swaths of tape covered the name of the charter company on the side of the planes. In the darkness of the night the 707s landed at LaGuardia in New York City. As Kreiling’s cowboys stood guard, shotguns in hand, armored trucks drove out to the airport from the New York Commodity Exchange warehouse in Manhattan, and security guards started to load some 40 million ounces of silver into the planes. The remaining 15 million ounces still sat in vaults across the Hudson River in New Jersey and out in Chicago. Randy had miscalculated when he chartered the 707s. He had rented three planes and recruited a dozen cowboys before realizing that this was clearly a four­-plane, sixteen cowboy job. 

When Randy and the cowboys arrived in Zurich, armored trucks again greeted them, taking the Hunt silver to five different banks. But real estate in Swiss banks was a scarce commodity. Switzerland, after all, is a small country. Space is limited — every underworld chief, dictator, and nervous multimillionaire on earth is hiding a hoard there — and the only space available is in the high-­rent category.

The Hunt silver was stashed in the bullion vaults of Credit Suisse, Banque Populaire Suisse, UBS, the Swiss Bank Corporation, and Freidlager’s, a Swiss warehouse that, lucky for the Hunts, could handle the overflow.

The costs of moving the Hunt silver were astronomical. Chartering the three 707s cost nearly $200,000 — $9 million in today’s dollars, according to the ShadowStats inflation calculator — and the fees for anonymous Swiss storage for the silver ran 0.5% of the value of the stored silver monthly. Storing their 15 million ounces in the United States and their 40 million ounces in Europe would cost the Hunt brothers $3 million per year— and this was when silver was below $5 an ounce. But Bunker preferred paying Swiss storage costs to paying excise and franchise taxes in the United States. Even more importantly, he could sleep more soundly knowing that his silver was out of the reach of the liberal/communist/Rockefeller/CIA conspiracy that, he was convinced, permeated the United States.

In 1974, the silver price had been ticking steadily upward. But when word started flying through the trading floors that a mysterious Texan had taken delivery of the largest single silver shipment in history, the price started convulsing. Traders believed that silver was susceptible to manipulation. With industrial use exploding and only a thin buffer between supply and demand, a few very large traders could easily induce a price spike. Whispers began floating that the Hunt brothers were attempting to corner the market.

As remarkable as the Hunt brothers’ silver adventures were at the time, the Texan billionaires were just getting started. Before it was all over, their ravenous appetite for physical silver would rock the economy of the world’s largest Superpower and attract the baleful gaze of government fiscal regulators.
We’ll continue the story of the Hunt brothers’ daring silver speculation in Part II of "The Day the Hunt Brothers Capped the Price of Gold," in next week’s issue of GoldSilver Nuggets.

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That’s it for this week's GoldSilver Nuggets. We'll be back next week with more news, insights and updates!
Best,

Brandon S.  
GoldSilver

Which ancient kingdom is credited with minting the first gold coins for general circulation, known as the Croeseid, around 550 BC?

A. The Roman Empire
B. The Kingdom of Lydia
C. The Persian Empire
D. Ancient Egypt

Answer – B. The Kingdom of Lydia

The Croeseid, also known as Kroiseioi staters, were gold and silver coins first minted around 550 BC in Sardis by Croesus, the King of Lydia. These coins are significant for being the world's first to have a standardized purity and to be widely circulated. Not only that, but Croesus was also the first to create a bimetallic monetary system, using both gold and silver coins.