Spokane7
68°
May 3, 2011 in Idaho
Silver’s soaring price evokes memories of earlier boom
Jerome Bunde, agent at Pennaluna & Co., talks on the phone with a customer at his office in Wallace on Thursday.
(Full-size photo)
Silver prices are flirting with $50 per ounce for the first time in decades.
In North Idaho, that inevitably brings back memories of Nelson Bunker Hunt and his brother William Herbert Hunt – two Dallas billionaires who tried to corner the silver market.
The brothers used their profits from Libyan oil fields to begin quietly buying up silver during the 1970s, a time of high inflation. At one point, the Hunts controlled an estimated 110 million ounces of silver. They were also major stockholders in the Sunshine Mine near Kellogg. During the Hunts’ high-stakes gamble, the price of silver briefly shot above $50 per ounce in January 1980. The brothers’ speculative buying came to an abrupt end when commodity exchange rules were modified, forcing the Hunts to put up money they didn’t have or quickly sell off their silver stocks.
Silver prices tumbled rapidly over the next two months, and so did the Hunts’ fortune. By some accounts, they lost $1.7 billion.
Michael DiRienzo, executive director of the Silver Institute in Washington, D.C., said the current run-up in silver prices is a much different scenario. Silver prices have been rising steadily since 2006. Both investment demand and growing industrial use are contributors, DiRienzo said. In addition to fabrication demand for jewelry, silver is an industrial metal, used in electronics because of its conductivity.
But some of the same economic jitters that existed in the 1970s are still around today, DiRienzo said. He credits them for record sales of silver bullion and coins, and silver’s most recent upswing. Since the beginning of 2011, silver prices have shot up nearly 50 percent.
Silver touched $49 per ounce last week before retreating to the $44 range during Monday’s trading.
“There’s a whole host of reasons that people are taking an interest in precious metals,” DiRienzo said. “The U.S. dollar’s performance overseas, the U.S. debt … unrest in the Middle East, inflation.”
Of course, $50 doesn’t buy what it did in 1980. In inflation adjusted terms, silver would have to hit $135 per ounce to reach the record set in 1980.
When the Hunts started buying up silver, they were looking for a safe haven for their wealth, according to news accounts from the time.
“Silver looked safer than overseas oil concessions, the way things were going. And precious metals were a good hedge against paper money,” Nelson Hunt told Time magazine in 1980.
The Hunts had quietly started buying silver in the early 1970s, when silver was trading for about $2.50 per ounce. At one point, the brothers were believed to control one-third of the world’s silver supply, outside of the silver stocks held by governments.
In 1979, the price of silver shot from $6 to $48 per ounce. The jeweler Tiffany & Co. took out a full-page advertisement in the New York Times, blasting the Hunts for “hoarding” silver and driving up prices.
In Idaho’s Silver Valley, local residents watched the price trajectory of their hometown metal with pride and awe. Skyrocketing prices drew national attention to the valley.
“Listen, it was heady times,” said David Bond, a Wallace-based mining writer for McGraw-Hill, who was the editor of a local newspaper at the time.
“60 Minutes” co-founder Harry Reasoner stayed at Wallace’s Stardust Motel while crews filmed a segment at the Lucky Friday Mine. The Hunts had visited the Silver Valley earlier, taking an underground tour at the Sunshine Mine in 1977.
“I didn’t meet any of them, but they were here,” said Jerome Bunde, an agent for Pennaluna & Co., a local brokerage firm with a long history in mining stocks.
The Silver Valley was a much different place at the time. The mines were booming, with the Lucky Friday, Bunker Hill, Star, Sunshine, Coeur, Galena and Crescent all in operation.
Both Hecla Mining and Coeur d’Alene Mines – two New York Stock Exchange-traded companies – had their corporate headquarters in Wallace. New York-based Asarco also had a large, regional office in town.
Most of the valley’s wage earners drew paychecks from the mines. The pay was good and the prosperity spilled over into an active nightlife.
“You’d be able to walk into a bar and find live music,” said John Amonson, the former director of the Wallace District Mining Museum. “There was a lot of money to spend on entertainment. … People went out for dinner, for dancing and for drinking.”
About a dozen bars flourished in Wallace, along with houses of prostitution. Kellogg had its own nightlife scene.
With silver so valuable, thefts of sterling silver, silver coins and silverware became common. Jack Lyman, the Idaho Mining Association’s executive vice president, recalls getting a special rider on his homeowner’s insurance to cover the flatware he and his wife had received for their wedding.
There was a corresponding flurry of prospecting activity in the Silver Valley, said Pennaluna’s Bunde. With the Spokane Stock Exchange still in existence, it was easier to organize small, publicly traded companies to raise money for exploration drilling.
But the exuberance was short-lived. The Hunts had borrowed heavily to finance purchases of silver contracts, according to news accounts. On Jan. 7, 1980, the commodities exchange rules were changed, requiring silver buyers to put up more of their own money. When the price of silver dropped, the Bache Group, which owned one of the nation’s largest brokerage firms, issued a $100 million margin call on the Hunts.
The brothers were unable to meet their obligations, which rattled world commodities markets. The date, March 27, 1980, became known as “Silver Thursday.”
Though the Hunts steadfastly maintained their innocence, a federal jury found them guilty of conspiring to corner the silver market. They later filed for bankruptcy. The brothers each paid $10 million in fines to the Commodities Futures Trading Commission and were banned from trading in American commodity markets.
Thudding silver prices took their toll on the Silver Valley. Mines closed as silver entered a long period of depressed prices.
“The happiness of $45 silver was long-forgotten with the bitterness of $4 silver,” Bunde said.
Miners to return to Lucky Friday 
polistra on May 03 at 8:34 a.m.
Good article. The current ‘gold bugs’ and ‘silver bugs’ who believe they’re getting something more constant than cash should pay attention to history. They won’t, but it’s nice to hope.
hawken on May 03 at 8:42 a.m.
The silver market is overdue a normal correction or reversal that will probably be 20-50%,,,, could be as much as 60% based upon the 70s-80s market.
However, as the article points out, there is little that compares to the 70s market and today’s.
The US was not on the brink of total, economic chaos and possibly collapse then as it is today.
Industrial demand is exponentially greater today than then.
Common people such as in China were not allowed to own silver and gold then. Today, China encourages and enables that vast population to own silver and gold.
Third world countries were not buying gold and silver then as they are now.
I welcome a healthy correction or reversal to shake out the gamblers, traders and those heavily leveraged in silver. A market correction will clean them out financially and put them out of the market. After this happens, the silver bull market will continue into the next decade when gold reaches $3,000 or more an ounce and silver $188 an ounce or more (the historic 16:1 Gold/Silver ratio).
Over the short term, silver will then probably take a breather for a while and then shoot to $80 an ounce in the not too distant future.
However, it is NOT a slam-dunk that silver will make a 20-50% correction considering all of terrible fundamentals in place and getting worse each day. We are in uncharted waters economically speaking.
Those who sell in panic during the correction will lose. Some will be forced to sell due to their personal situation.
Those who take opportunity to add to their position during a correction will gain exponentially over the years ahead. The gold/silver bull market has a long way to go.
We are broke and cannot pay our debts. It’s only a matter of time before the US dollar takes another huge nose dive in value. There could be a crash of the dollar. Especially, when the US dollar is no longer accepted as the “reserve currency.”
We are now seeing QE2 (Quantitative Easing) by the FED. Simply stated, the FED is printing new dollars out of thin air to buy back our own debt with inflated dollars. We will see QE3, QE4 and who knows for how long?
All of this QE printing insures inflation and a very good chance of hyperinflation.
The only realistic way out of this mess if for the FED to “inflate.” Coming soon,,, QE3, QE4 and possibly beyond
The other way out is to “SLASH” government spending,”SLASH” taxes and “SLASH” government regulation on US business. Thus, fueling jobs and economy exponentially. This of course will not happen in our “Nanny State.”
RedCedar on May 03 at 10:06 a.m.
The main lesson from the previous silver spike is that a couple of hicks from Texas had best not mess with the old-money Wall Street boys. Would you sit down and gamble at a table where the house can change the rules after you’re in the game? The Hunts were getting too big for their britches so the house (Comex) upped the margin requirements. That’s no different from a gambling house saying you have to come up with some more cash if you want to keep your chips on the table. Silver is regaining the allure it used to have as the “working man’s gold” (Read William Cullen Bryant’s “Cross of Gold” speech), and that’s working both ways now. A lot of working men are gladly selling their silver at $40+, giving them some cash just when they need it.
It’s hard to say what will happen economically. Obviously there’s fear of inflation out there, and obviously there’s speculation in all commodities. The Fed is printing money but so are lots of other central banks, and much of what the fed is “printing” is just canceling out money that’s disappeared in other ways, such as mortgage loan books that are no longer worth what they once were. In some ways, the US, Europe, and Japan are all racing to the economic bottom, but relatively speaking, the US might still end up on the top of the wreckage.
Silver is a useful metal. It’s valuable enough that a person can carry and store a significant amount of it, but cheap enough that a normal person can actually afford to buy some. It’s the best electrical and thermal conductor. It forms an oxide that reduces to the metal when heated, which makes it great for high-current electrical contacts. It’s good for many things in electronics and its vital for chemical photography. There will always be some industrial demand for it.
Of course the best thing to do with silver is make it into jewelry, set turquoise in it, and put plenty of it on a beautiful woman. It has a softness that is the opposite of gold and cut gems. Its white color enhances the natural color of her skin, rather than competing with it like gold does. With age, it develops a patina that highlights the designs that have been worked in it. I’ll leave it to others to decide whether decorating beautiful women is a more or less valuable function than electronics, photography, and money.
packsack on May 03 at 11:42 a.m.
Most people do not understand the metals? The people are only interested if their CC works or debt. We are being program to use a card. Cashless business transaction. where they can tax and find out any income.
As a child we had silver dimes and quarter and silver cert. No inflation and price hikes.
National debt of 200-300 billion, pretty much full employment and respected around the world.
Today just the biggest beggars and two faced officials. No one wants to hear the truth or come to reality what going to happen with our currency.
Remember your wealth is being stolen by greed and the government. 100% of nothing is still nothing. The ones with assets must figure to preserve some wealth and government will find ways to take it from you in life and death.
randydutton on May 03 at 1:38 p.m.
RoHS is partly responsible for higher silver prices. The EU Restriction of Hazardous Substances now bans the use of lead solder in electronics, Silver immersion is the replacement technology and it creates a permanent and growing demand for silver. China adopted the RoHS regulation, and companies in the US are following suit.
By the way, silver immersion does NOT make as robust an electrical connection as lead, and it is more susceptible to corrosion than lead. But the environmentalists would rather your electronics fail so you can replace them, over and over, than have lead in the landfill.
Why does the press ignore the global economic reasons?
zelda on May 03 at 2:16 p.m.
I know some people who were taken to the cleaners in the silver frenzy of the late 70s. And there was a certain bullion dealer on Riverside who was happy to take people’s money. There were a number of news reports written about him at the time and the aftermath.
There are a lot of other metal commodities that seem like more attractive plays — tantalum is one — that don’t come with all the speculative baggage carried by the John Birch/bomb shelter lunatic fringe. ‘Course you have to be comfortable with the fact that people in Congo are killing each other over it as they scrape it out of the dirt with their fingernails.
greenlibertarian on May 03 at 8:07 p.m.
Of course the best thing to do with silver is make it into jewelry, set turquoise in it, and put plenty of it on a beautiful woman.
Agreed.
Panikfan on May 04 at 6:25 p.m.
“polistra on May 03 at 8:34 a.m.
Good article. The current ‘gold bugs’ and ‘silver bugs’ who believe they’re getting something more constant than cash should pay attention to history. They won’t, but it’s nice to hope.”
“more constant than cash”…. Interesting way to put it. In 1964, two dimes and a few pennies would buy you a gallon of gas. Today, those same coins will still buy you a gallon (or two) of gas, where as the same face value of paper ‘money’ has lost somewhere in the neighborhood of 3000% of it’s purchasing power. Gold and silver seem pretty consistent to me.
Personally I hope everyone takes your advice… Buy the market instead, and let me collect real money on the cheap. :)
eagleproducer on May 10 at 10:36 a.m.
Silver said: “How do you like me now?” “I’m down for being down 25% in a few days.” Thank goodness suckers like Hawken got cleaned out before they could sell in the frenzy that ALWAYS accompanies these spikes in prices of commodities.
All of these arbitrary assignations of wealth for rocks out of the ground are senseless and only have value in the minds of morons.
Debit cards are the invention of the “One Worlders.” Didn’t you know that? They’ve entered into a deal with Yahoo to sell all of your purchasing habits to advertisers in order to niche market goods your way and essentially eliminate the middle man between you and the tinfoil hat makers, brewers of malt liquor and fallout shelter manufacturers.