Silver Thursday: the 1980 crash that changed the market.

Nelson Bunker Hunt and William Herbert Hunt began buying silver in 1973. Their view was simple: the dollar had been cut loose from gold two years earlier, and paper money would lose ground over time. They bought physical metal and futures contracts, held on, and kept buying. By late 1979, the Hunts and their Saudi partners held about two hundred million troy ounces of silver — roughly one-third of the world’s above-ground supply outside government stores. Most of that position sat on borrowed money.

Silver came into 1979 near six dollars an ounce. As the brothers kept buying and the wider market moved with them, the price climbed sharply. On the eighteenth of January, 1980, silver reached forty-nine dollars and forty-five cents — the highest nominal price in its history at that time, a peak that wouldn't be seen again for more than thirty years. At the top, the Hunts’ silver was worth about ten billion dollars on paper. Almost all of it was financed with debt.

The thesis was not wrong. The execution was. A rule change did the rest.

In January 1980, COMEX and the Chicago Board of Trade brought in new trading rules known together as Silver Rule 7. The rules set strict limits on new long positions and forced the largest existing holders to cut back. The stated purpose was to prevent market disruption. The practical result was to push the largest long in the world — the Hunts — into forced selling. As prices fell from the January peak, margin calls came in. The futures position took cash to hold open, and every tick lower made the calls larger. By early March, the brothers were struggling to meet them.

On the twenty-seventh of March, 1980 — Silver Thursday — the position gave way. Silver fell to ten dollars and eighty cents an ounce intraday, a drop of more than seventy-five percent from the January peak in under ten weeks. The forced selling was large enough to threaten several major brokers and banks that had lent to the Hunts. A consortium of banks, with quiet backing from the Federal Reserve, put together a loan of one and one-tenth billion dollars to keep the default from spreading through the rest of the system.

The Hunts went on to default on more than one and a half billion dollars in debt and eventually filed for bankruptcy. They were later found liable for civil conspiracy to corner the silver market and were ordered to pay one hundred and thirty-four million in damages. Both brothers were barred from trading commodity futures. Silver steadied in the mid-teens through the early 1980s and then began a two-decade decline. The episode led to lasting changes in position limits and margin rules in commodity markets.

The lesson isn't that silver is a poor holding. The underlying view — that silver carries real worth and that paper money would be stretched — wasn't plainly wrong. The lesson is what leverage, crowding, and borrowed money can do to a sound holding under pressure. A buyer who owned plain physical silver in 1980, free and clear, had a hard year on paper. A buyer who held the same view through leveraged futures lost everything. The thesis and the execution are two different things, and the second is what a household holding must get right.