How The CBOT, Comex And CFTC Coordinated To Break The Last Silver Price Surge

Tyler Durden's picture

Just like QE is nothing new in the monetary arena, and has seen some incarnation at least since the early 80's primarily in Japan, so parabolic commodity price surges have occurred periodically, most notably in 1980, when Bunker Hunt brought the price of silver to over $50. However, unlike any time before, never in the history of the world have we seen a coordinated worldwide monetary stimulus via relentless credit money "printing" courtesy of global central banks. In that regard, this time really is different, as there is no other remaining backstop to the world financial system: the global banking cartel has used up all its bullets and now can only double down in the most nightmarish Martingale system ever conceived, where each iteration means further fiat absolute value destruction (on a relative basis it simply means a race to the currency bottom, whereby definition only one can be in the lead at any given moment: usually the one with the biggest printing press, and greatest deflationary threat). And while many still believe that QE2 will be the last of domestic US monetary easing episodes, as Bill Gross noted earlier, it is very possible that the US may be headed into a triple-dip recession, for which the only prescription will be another QE round (with political gridlock in DC at unseen levels no fiscal stimulus is even remotely possible). If this happens, precious metals will once again surge. The only question is what will the exchanges do after the next gold and silver spike? Indeed, as we suggest, margin hikes are just the beginning. For a complete playbook of how the CME may proceed after the margin hike approach fails, we once again go back to the curious case of Bunker Hunt. Below, from the Playbook biopic of the Texas billionaire we posted yesterday, we present the walk through of how the CBOT, Comex and CFTC tried to break silver's back. Back in 1980 they succeeded. Have they, and will they succeed this time?

...The CFTC and the officials of the two exchanges decided to have a little talk with the Hunts. Explaining that they feared a squeeze, the exchange officials asked them if they would consider selling some of their silver. The brothers’ answer was no. What was more, they said, they intended to keep buying silver and to keep taking delivery on it. They thought silver was still a good buy, even at the  new high prices. Besides, as Bunker put it with typical understatement. “If you sell, you get into a tax problem.”

On top of all that, Bunker really did believe in silver as a long-term investment, the underpinnings of a new economy. He did not say that in so many words to the CFTC men and the exchange officials, but he did give them a glimpse of his basic apocalyptic vision when he revealed a previously undisclosed feature of his silver play: the fact that he was moving his metal to Europe. This time, he did not fly the bullion overseas in chartered jets with cowboy guards. As he told the CFTC, Bunker simply traded 9,000,000 ounces’ worth of metal he held in Chicago and New York exchange warehouses for an equal amount of bullion held by other traders in London and Zurich. The reason? As he explained to the CFTC and the exchange officials, he feared that the U. S. Government might expropriate silver from Americans just as it had expropriated gold back in the Thirties.

But Bunker’s assurances that he was willing to cooperate as much as possible apparently mollified the CFTC officials; the C.B.O.T., however, concluded that it was time to act. In a move aimed directly at the Hunts and the other big buyers, the Board of Trade raised the margin requirement and declared that silver traders would be limited to 3,000,000 ounces of futures contracts. Traders with more than that would have to divest themselves of their excess futures holdings by mid-February 1980.

With that, the battle lines were drawn. Bunker let it be publicly known that he thought the C.B.O.T. was changing the rules in the middle of the game, and vowed to fight the limits all the way. Privately, he regarded the C.B.O.T.’s action as another conspiracy against him by the Eastern establishment. And for once, he had a good prima-facie case.

The boards of both the Chicago and the New York exchanges were composed not only of “outside” directors but also of representatives of the major, usually Eastern-based brokerage houses. Later testimony would reveal that nine of the 23 Comex board members held short contracts on 38,000,000 ounces of silver. With their 1.88 billion dollar collective interest in having the price go down, it is easy to see why Bunker did not view them as objective regulators. At the same time, though, the C.B.O.T. restrictions made Bunker even more bullish on silver, because, as he put it, “they show a silver shortage exists.”

Bunker appeared to be right. Through November and December, the price of silver rose faster than ever. By the last day of 1979, the price reached an astronomical $34.45 an ounce. Meanwhile, the Hunts’ silver holdings kept increasing. By the end of December, the Hunts and their Arab partners held 90,300,000 ounces of bullion that the CFTC knew about and another 40,000,000 ounces the Hunts had stashed in Europe. The Hunt group also held about 90,000,000 ounces worth of silver futures, most of them due for delivery in March on the Comex in New York.

By this time, the CFTC became concerned that the silver positions held by the Hunts and the Conti group were “too large relative to the size of the U. S. and world silver markets.” Subscribing to the philosophy that the futures market was not a substitute for the cash market, the commission determined that the time had come to stop Bunker’s perverse buying spree. A meeting to decide what to do was set for January 8, 1980.

Then the Comex stepped in. On January seventh, the exchange announced new position limits restricting traders to no more than 10,000,000 ounces’ worth of futures contracts. The effective date of the limits was set for February 18. The day after the Comex announcement, the CFTC announced that it was backing the exchanges new limits.

Bunker was incensed. “I am not a speculator. I am not a market squeezer,” he protested. “I am just an investor and holder in silver.” Taking the offensive, he accused the exchanges and the Government of destroying the U. S. silver market by changing the rules in the middle of the game. “The market will move to Europe,” he predicted ominously. “The silver market in this country is a thing of the past.”

Strangely enough, the price of silver fell only one day in the wake of the Comex announcement, then started climbing even higher. Part of the reason for the continued price spiral, according to an after-the-fact analysis by the CFTC, was that Bunker kept buying silver. On January 14 and 16, the Hunts made agreements to take future delivery on 32,500,000 ounces of silver (mostly in London) at various dates that spring. The largest of those contracts were with Englehard Minerals. On January 17, silver hit a record high of $50 an ounce.

Bunker could hardly be incensed about that. On that one day, the worth of the Hunts’ silver bullion holdings was nearly four and a half billion dollars. Since most of that silver had been acquired at less than ten dollars an ounce, they had a profit of over three and a half billion dollars. Bunker and Herbert had made nearly as much money in the past six months as their late father had made in his entire lifetime, at least on paper. Of course, if Bunker actually sold all that bullion, he would face enormous tax consequences. The trick now was to figure a way to utilize those huge gains without having them decimated by the taxman.

As Bunker pondered that, the exchanges decided to impose their most stringent restriction yet. On January 21, the Comex announced that trading would be limited to liquidation orders only. There would be no more futures buying. The game was closing down.

The next day, the price of silver plunged to $34, a drop of ten dollars in a single day. It stabilized shortly after that, and remained in the mid to high 30s for the rest of the month. But in February, the price began to slide downward again. By that time, silver was literally coming out of the woodwork. In response to the new high prices, old ladies had been selling their tea sets. Families had been hocking their silverware. Coin collectors had been divesting themselves of their collections. In January and February alone, an estimated 16,000,000 ounces of silver coins and an additional 6,000,000 ounces of scrap silver had come onto the market. With the price of silver now dropping, some of those small sellers and small investors began complaining to the CFTC about the exchange restrictions...

Ironically, while the paper holders of silver may be complaining to the CFTC now, the inverse is true about physical supply-demand dynamics. Indeed, instead of a scramble to convert physical silver to paper, we continue to see the inverse as a material amount of silver wholesale retailers continue to be out of actual silver.

And, as was posted yesterday, those who wish to read the full story of Bunker Hunt and the still historic surge in silver, may do so here.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
efiniti's picture

Breasts!  They're Fucking D's!!

Captain Benny's picture

Anyone that thinks that the big spot price drops in silver are scaring away us buyers may want to think twice and consult some real cold hard #s.  Besides all the first-hand reports of people talking with dealers that say sales are picking up and at all time highs, here is some info collected from APMEX:

This isn't anything like the January dip, the market is accelerating... BTFD and watch it roar.

APMEX is moving 100 oz bars like they're candy.  The only bar they have in any kind of quantity is the JM bars and those they could be sold out within a week.  Take delivery.  The Memorial day sale arrived a little early... :)

Transformer's picture

Hey, I'm on my high horse now.

So what the fuck is APMEX doing selling their bars so cheap that they run out of them in short order? 

OH, I forgot, it's that federal law that says that metals must be sold at Comex prices, I forgot!!!  sarc/off

APMEX is in the position, where they could be the pricesetters.  After all, read the name!! It says, "America Precious Metals Exchange"!!!! 

BOY!! are they ever missing out on an opportunity.  They could be setting their price based on Supply and Demand.  AND, they are so big, they just might become the price authority that every one else refers to.  Local dealers could be pricing their silver at "APMEX + $1.50" or whatever.  You go into your local store and the guy behind the counter says, "well, let me see I'll check the APMEX"


traderjoe's picture

Yes, please, save us from ourselves!

Or leave.

I'll choose the 2nd. Thanks.

tmosley's picture

As long as they are able to get supply, they are free to have whatever prices they like.

As the spot price continues to fall, they will find themselves unable to bring in supply, and will be forced to raise their premiums more and more.  This is already happening.  Eventually, they will realize that the premiums are greater than the spot price, and will stop taking spot into consideration.

There is no reason to expect this to be an instantaneous process.  It could take months or years, or it could happen in weeks.  It depends on how outrageous the CME continues to act over the coming days.

Transformer's picture

The CME has perpetrated a vast fraud.  The pinnacle of which was this past week, when everyone, and I mean everyone, who trades/buys/sells silver knew they were manipulating.  Throughout history, fraudulent activity cannot continue when all the players know the fraud.  I think this will happen very quickly, probably just in a matter of a couple weeks.  We, here, are at ground zero on this (Zero Hedge).  Thousands and thousands of people read this stuff.  You will see the change building momentum over the next days and weeks. 

And you know what?  I think the turning point was that CFTC hearing in March of a year ago.  The truth was stated by the GATA guys, and then that idiot,  that complete numbskull, Jeffery Christian testified and backed up the GATA guys.  That was it.  What a stroke of luck that the Evil Empire sent that boob to testify for them. 

SRSrocco's picture

Captain that chart for all orders...or just BUY?

sabra1's picture

i forbid my six year old son from reading ZH because of your avatar!

i-dog's picture

Do you also lock him in a cupboard so that he doesn't see any cleavage out in the street?

Diogenes's picture

Your bottle fed six year old son I presume?

tarsubil's picture

Oh, I get it. People want to put their "junk" in that.

clymer's picture

They bought time, but will not succeed in any permanent result unless Bennie pulls a Volker and raises rates to many many percentage points highr than is possible without worse consequences.


Silver is going to 100, then 500. Might take 18 months or 60.. Doesn't matter.


Learn it. Know it. Live it.


(and ignore robo's dramatic and fawning caricature of his feared slave master, mr. rich banker below)

Transformer's picture

But, their time is up.  I think this is it, the end, of the Comex Silver Scam.  A scam can only continue when people don't understand what's happening.  They were so blatant in their manipulation on Sunday nite, and then continued blatantly all week, that only a total idiot could go on believing the lie.  So now, the industry starts to set their own physical price.  Market segments have been able to set the physical price for their products for thousands of years.  It's actually pretty easy.

Silver is going up, way up, when priced in dollars.  But the dollar is depreciating so quickly, that the actual reality, is that silver is going up some, the dollar is going down.  If you want to know how much silver is really going up, that's in the gold/silver ratio.  Want to know how much the dollar is really going down?  that's the gold price, not the USDX.

Tail Dogging The Wag's picture

let's get physical, physical...

Hushups's picture

Well at least you have the courage to admit that you're a coward.


Meanwhile the story of the 80's and the story of today seems to diverge from each other at the end point. In one story everyone is selling their silver, in the other story everyone bought everything they could.


**Spoiler Alert**


King Kong dies.



buck4free's picture

Absolutely. Ben Davies alluded to this a few days ago when he was making his top-call on an interview on KWN. He said that even he had overlooked the amount of physical demand by small investors that had been spurred to action largely via the internet.

This is a bottom-up dynamic completely different from the cornering in Hunt's day.

King Kong can wrestle Godzilla, but he has no effective weapon against a global swarm of African Killer Bees.

Caviar Emptor's picture

Exactly. The internet has a lot to do with it. For one thing it created a wave. A big one (no tsunami metaphors tonight, sorry). It's not just about the ego of a single person or firm. For another thing, the internet has allowed access to information that the public was previously kept away from. The truth shall set you free. Finally, the internet allowed individuals to draw their own conclusions on economic data. The data is what pushed buying in precious metals. And it's going to continue as wave after wave of new entrants keep coming, learning and deciding for themselves that the only way to protect earnings, savings and wealth from the programmed and ordained decline in the value of currency is through PMs. 

fockewulf190's picture

Uncle Gorilla is going to find out quite soon what kind of damage a silver bullet can do from a SLA rifle.

tmosley's picture

More like thousands upon thousands.

I envision the scene as something like this.  The kid complaining at the end is Robotrader.

Of course, in our case, ALL the bullets are silver.

FIAT_FixItAgainTony's picture

amen ! 

and with stabs in both achilles heel's with silver knives along with repeated raps to the head with giant silver shields covered in real shiny blinding silver spikes.


"where?  behind the rabbit?"

"i'm warning you..."

Transformer's picture

Right on.  We are the killer bees.  We do not need slick New York con men in $2000 suits telling us what the price of silver is.  We have so much more power.  They have just mounted the biggest assault they can possibly do. And what?  All the dealers are sold out?  Producers, distributors, dealers,   WAKE UP!!!

Dejean Splicer's picture

One (1) 2011 American Silver Eagle Coin 1oz

Just ended. May 06, 2011 19:41:14 PDT

8 bids, winner $44.51.

FIAT_FixItAgainTony's picture

ahhhh.  another verification the paper silver price is not reality !

"Sweat not the alleged market corrections for they are as a fart is to the wind."

FIAT_FixItAgainTony's picture

glad i picked up 7 2011 ase's when they were 32.25 each with shipping!

Transformer's picture

Yeah, and let those City Slicker con artists fart all they want.  Supply and demand rules.  Fuck the COMEX.

mrgneiss's picture

It's okay GZG, you can let it all out here, there is no Ynot2K looking over your shoulder.

Stormdancer's picture

rofl!  Good to see you too mrgneiss :)

mrgneiss's picture

Great to see you as well Storm, keep up the good work!

Rick64's picture

 Well at least you have the courage to admit that you're a coward.

 Would you face George Saint-Pierre in a UFC match?

i-dog's picture

Irrelevant. This is asymetric warfare ... they have the printing presses and politicians, we have the internet and superior numbers (growing numbers, as people are awakened).

Transformer's picture

Exactly!!  We don't need con men in $2000 suits to tell us the price of silver.  We have more silver than they do.  As far as physical is concerned, they are a very small part of the market, a couple million ounces every other month.  The mint sells more silver than they do.  We buy way more physical, probably 10 times as much as they sell.  What in God's name do we need them for?  Let them sell paper to whatever fools want to buy it.

Bagbalm's picture

Federal Reserve Notes were more desirable then.

Transformer's picture

Yep, you got it.  The Hunts almost had it.  If they would have just focused on real silver and backed off the Comex when the Comex started making noise, they could have pulled it off.  They already had a huge stash of silver.  Bunker had issues with "the northeast establishment" and didn't act rationally as a result.  Only, dig this.


The $2000 suits are just about out of silver and now can only sell paper to each other, and whatever fools think they can beat them at their game.



Rynak's picture

Updated list of probably paid trolls:

grand supercycle
texas gunslinger
alcoholic native american
Paper CRUSHer
mogul rider
red barron


Expect the following messages:

- "You are impotent and defeated, better give up now, you cannot win!"

- "Holy shit, do not buy now! Please, do not buy!"

- As usual lots of copy-paste spamming

topcallingtroll's picture

Actually I have documented last thursday to buy ZSL at 13.69

I documented this morning to buy AGQ at the open and sell after a quick bounce.

I not only loved silver this morning. I loved it enough to go double silver!

I am not silver's enemy.
I am silver's fair weather friend.

Rynak's picture

Sorry, seems like you got catched in the crossfire in a thread a few days ago, i try to be careful before including someone, usually waiting for 4-8 consistent posts in a row... but with the flood of shit in recent days, i'm not free of mistakes.

bothsidesnow's picture

Look at you, you post as akak and rynak, pussy.

tmosley's picture

I think you are thinking of yourself there, Gold 36000.

topcallingtroll's picture

Thats cool!

I do like to troll you guys every once in a while, but all in good fun!

After all we all hate the banking oligopoly. We got something in common.

bothsidesnow's picture

Go and read my posts I'm long physical. I began to recommend shorting paper before the top to raise capital for additional physical purchase.

Once the likes of akak and TMosely started bashing me I decided to play the childish game with them.

Now I can buy more physical with my paper profit when it drops to 28-30 which is where I entered.

Some times you have to be a friend of paper.

Rynak's picture

Thanks for openly admitting it yourself.

(your motives change nothing about the consequences of what you're doing. I don't dislike you for your investments - i couldn't care less about them - i dislike you because you are intentionally lowering the quality of threads for your own amusement (or wealth, whatever))

Oh, and by the way, in your above post, you say

"Now I can buy more physical with my paper profit when it drops to 28-30 which is where I entered."

But then later down in this thread, just a few minutes later, you wrote:

"Silver will be going to 9 again. Then it will be time to buy."


You're just making numbers up randomly, fuckhead. You have zero credibility, troll.

Dangertime's picture

I'm a paid troll because I bought puts for two weeks and on up to the top and sold them two days later for a 100% gain.

You people have serious issues.


tmosley's picture

And claimed to have bought at the absolute low and sold at the absolute high and didn't know basic price action that any silver owner would have known and claimed that he didn't have to pay capital gains taxes and refused to tell us all where this magical fairy kingdom with no capital gains taxes exists.

I think you are the one with issues, newfriend.

bothsidesnow's picture

More drivel about coordinated efforts, conspiracies, blah, blah. Conspiracies of paid trolls. You are delusional.

We are headed for deflation and possibly depression. Pump and dump. Pump and dump wave get's bigger until everything implodes. Time for the dump.

I'm not sure your physical will buy you anything in a deflationary environment. Perhaps you will be able to make a solar panel out of it. Some very good DIY sites on constructing solar panels. LOL

This message paid for by the Federal Reserve, COMEX, CBOT, TPTB and not endorsed by the Pimple (Precious Metal Sheeple). LMFAO


Muir's picture



ignore him BTFDS!!


bothsidesnow's picture

Looks like at least one person agrees with me ;)

EscapeKey's picture

Which of your alter ego's would that be?

Hephasteus's picture

It's just tragically funny to watch.