Information on Silver
Silver is more malleable and ductile than any other metal except gold. Its chemical symbol is Ag, its atomic number is 47 and it is found free in nature or in ores containing other metals such as copper and lead. It has the highest electrical and thermal conductivity of all metals. Silver melts at 960 degrees Celsius (1760 degrees Fahrenheit) and has a density of 10.5 grams per cubic centimeter, nearly half as dense as gold. It is the best reflector or visible light known, until air causes it to tarnish.
Brief History
Silver's history nearly parallels that of gold. It has been in common use since prehistory. Ancient Sumerians mined silver and worked it with skill nearly 5000 years ago, developing many of the basic techniques used today.
Most people who followed the price of silver in the late 1970's and early 1980's remember the Great Silver Boom when silver went from under $10 per ounce to over $50 per ounce. As the price of silver fell drastically, the Hunt brothers were blamed widely for the collapse in the silver price and well as the initial raise in silver price. In reality, the Hunt's did not initially cause the run-up in metals prices, though they certainly helped it along. The government gold auction held in August of 1979 was very successful, demand was higher than expected. With the increase in demand for metals, caused by buying on the part of bullion dealers and small investors world-wide, the price started to take off. This rise in metals price was a concern to the commodity exchanges, who raised contract minimums to keep the thousands of small investors out of the market. What the exchanges did not count on was the replacement of the small investor by others with much deeper pockets, namely the Arabs. With almost unlimited funds, mainly from Swiss banking concerns, the Arabs bought large quantities of silver contracts. Now it becomes interesting. The Chicago Board of Trade changed the rules! It decreed that no one would be allowed to hold more than 600 long contracts. Soon after the Commodity Exchange did the same. This was perfectly within their rights. The only problem was, the exchanges did not want anybody to own long contracts at all. In order to accomplish this, some sort of "emergency" was required. This, not surprisingly, was provided by President Jimmy Carter, who issued a boycott of the Olympic Games. The new rules were that the only contracts that could be bought were to fill a short market position. With investors only able to sell, the price of silver, of course, started to fall. The Hunts, who began buying long silver contracts in 1974 were faced with the price of silver falling daily, and constant margin calls on their contract holdings.
Since the Hunts did have large holdings of actual silver metal,
the banks were more than happy to make loans for them to use
for the margin calls that were getting larger and larger by the
day. This worked until the banks realized that the price of silver
was going to continue downward. The banks would not loan any additional
money! This presented a severe problem for the
brokerage houses who now had investors by the thousands reneging
of margin calls. At this time one of the largest brokerage
houses was about to go under. Bache, who was owed $100 million
in margin money by the Hunts faced disaster. The Hunts
could not make their margin call. It was a catch-22. The brokerage
houses were owed hundreds of millions in margin money
and they were on the verge of going under. The banks, who had
taken hard silver as collateral for loans to the Hunts were in
danger of going under since the value of the hard silver was no
where near the amount loaned. In steps the Federal Reserve
who came up with a $1.1 billion loan. The brokerage houses got
their margin money. The banks got most of their loans paid
back. The Hunts got to keep their hard silver. The Hunts finally
did dispose of their silver holdings and did pay off the
extraordinary loan. Did the Hunts actually lose money on the deal?
No one knows for sure. Since they bought the vast
majority of their silver between 1974 and 1979, they most likely
were in it at a rock bottom price. Did the Hunts get shafted?
Probably. They played by the rules, and the rules were changed
in the middle of the game. Was it ethical for the Hunts to
attempt to corner the silver market? Big business sometimes has
a rather "unusual" idea of what is ethical and what
isn't. The
only sure thing is that thousands, if not millions of small investors
got caught in the middle and did lose money, and lots of it.
More to come.......