Iranian Revolution and the Fall of the Shah
The Iranian Revolution of 1978-79 also played a significant role in the broader context of the Hunt brothers' silver play:
1. Oil price spike: The revolution led to a disruption in Iranian oil production, causing global oil prices to more than double between 1978 and 1979. This spike in oil prices fueled inflation fears, making precious metals like silver more attractive as a hedge.
2. Geopolitical instability: The fall of the Shah, a key U.S. ally in the region, created a sense of instability in the Middle East. This uncertainty further drove investors towards safe-haven assets like silver.
3. Petrodollar recycling: With oil prices soaring, oil-producing countries like Saudi Arabia had even more dollars to invest. Some of this money found its way into the silver market through partnerships with the Hunts.
The combination of these factors – Saudi involvement, oil wealth as leverage, and the geopolitical instability caused by the Iranian Revolution – created a perfect storm that amplified the Hunt brothers' impact on the silver market. It also explains why U.S. regulators were particularly sensitive to the situation, seeing it not just as a case of market manipulation, but as a potential threat to economic and national security.When the silver bubble finally burst, it wasn't just the Hunt brothers who were affected. The fallout rippled through their Saudi partners and highlighted the interconnectedness of oil wealth, geopolitics, and global commodity markets.
Warren Buffett's Silver Bet
Fast forward to 1997. Warren Buffett, through Berkshire Hathaway, quietly amassed 129.7 million ounces of silver – worth about $910 million at the time.
Buffett's play was different from the Hunts'. He bought physical silver outright, avoiding leverage. His thesis? Industrial demand for silver was outpacing mine production, and he saw an opportunity for price appreciation.
Buffett's purchase represented about 20% of the world's above-ground silver inventory. When news of his position broke in February 1998, it sent ripples through the market. Silver prices jumped from around $5.50 to $7.50 per ounce in short order.
Unlike the Hunts, Buffett played the long game. He held onto the silver for years, gradually selling it off. While he never disclosed the full details of his exit, Berkshire's regulatory filings suggest he'd sold most of it by 2006.
Concluding Thoughts
These episodes in silver market history reveal a few key points:
1. Silver's dual nature as both an industrial metal and a store of value makes it prone to speculative frenzies.
2. The relatively small size of the silver market means that well-funded players can have outsized impacts.
3. Leverage is a double-edged sword. It amplified the Hunts' gains on the way up but accelerated their losses on the way down.
4. Well-capitalized investors like Buffett have a history of outperforming on the basis of long-term fundamental trends.
The silver market remains a playground for big money and bold bets. While the days of brazen attempts to corner the market may be behind us, the potential for dramatic price swings – driven by industrial demand, investor sentiment, or the moves of big players – remains very much alive.
If you'd like to learn more about the Hunt Brothers and Silver Thursday, we can only recommend this 1980s vintage video about the event.
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