Rogue Traders: Nelson Bunker Hunt, Photo: Tullio Saba (Flickr)

Rogue Traders: Nelson Bunker Hunt

“It is unconscionable for anyone to hoard several billion dollars' worth of silver”Ad taken out by jeweller Tiffany in the New York Times on 26 March 1980

The Arkansas town in which Nelson Bunker Hunt was born in 1926 was called El Dorado. Starting life in a place named after a mostly mythical city of gold seems appropriate for this rogue trader most famous for his dealings in metals – except that it was silver that led to his downfall.

Hunt grew up already rich as the second son of Texas-based oil tycoon H.L. Hunt, who fathered fifteen children with three wives, in sometimes overlapping marriages.

Hunt did not emulate his father’s complicated personal life, but did follow him into oil. Leaving his Texas homeland, he struck out on his own into the Middle East. But after failing to locate enough black gold in Pakistan and Saudi Arabia, he found success in Libya with the 1961 discovery of the Sarir oilfield, one of the largest in the world.

Oil from Sarir made him an incredibly wealthy and influential man. For a short time he was the world’s richest person. One obituary said he had been a real-life JR Ewing, the powerful and manipulative star character of hit US TV show Dallas.

However, Hunt’s fortunes saw a soap opera-style twist in the early 70s. Following Colonel Gaddafi’s rise to power, the Sarir field was nationalised, destroying his business here.

Looking for a new opportunity to make money, he settled on silver. As an extremely devout evangelical Christian, he believed that silver would be a good asset to hold after what he thought was an imminent apocalypse, when paper money would hold no value.

Together with two of his brothers, Hunt proceeded to invest heavily in silver futures. By 1974 they held contracts to buy approximately fifty-five million ounces of silver, representing eight per cent of the world’s supply, according to Silver Monthly magazine.

Most derivatives traders never see the products that underly the contracts they trade in. But Hunt and his brothers, worried that the US government would eventually confiscate stocks of silver as it had done with gold in 1934, were determined to protect their investment by taking physical hold of their silver and getting it out of the country.

They chartered three jets to fly to Chicago and New York in the dead of night, and then loaded them with forty million ounces of silver and then sent these to Switzerland for safekeeping, according to Silver Monthly. Just a small proportion of their silver holdings remained in the US.

They continued to amass more and more silver, eventually controlling half the world’s supply which was then worth several billions. The market responded, driving prices up to over $50 an ounce in early 1980, the situation heightened by rumours that the Hunt brothers were attempting to control the entire market. Meanwhile, other silver buyers complained about shortages.

By now, the Hunt brothers had made a paper return of around $3.5 billion from an initial $1 billion investment, according to Silver Monthly. But they never managed to realise their trading gain.

External events and a certain ignorance of the workings of the financial instruments they had invested in brought the Hunt brothers down.

Things started with a sudden increase in US interest rates by the Federal Reserve, which was attempting to slow inflation. This removed the excess cash in the market that had helped to fuel high silver prices. Regulators also took steps to slow trading in silver, and eventually stopped it altogether. As a result, prices began to drop, reaching a level of just $21 by mid-March.

On Thursday 27 March, the price of silver halved, closing at under $11. This led to the day being immortalised with a name – “Silver Thursday” - like others that have seen huge market disasters.

Nelson Bunker and his brothers were left with obligations to deal in silver at the previous high prices that they had generated. Billions of dollars of profit on paper turned into billions of debt. Crunch time came when they were not able to put up the cash for a margin call and had to be bailed out by banks.

Other silver investors suffered from the dramatic price drop too, which caused market panic and confusion.

The brothers did not escape without punishment. Hunt declared personal bankruptcy and was convicted of illegally attempting to manipulate the market in silver.

He was not completely destroyed by Silver Thursday, however. He was left with substantial assets, thanks to legacies from his father, and continued to pursue investments in various areas.

One of these was racehorses, a lifetime passion that appears to have been more enduring than his interest in oil or silver, or anything else in the business world. “I really don’t know anything,” Hunt once said, according to an Independent article written shortly after his death in 2014. “I’m just trying to win a few races.”

“A lack of financial education can be the downfall of any silver investor – even billionaires.”Silver Monthly magazine