The Silver Rally, The Kansas City Chiefs And A Market History Lesson

To market veterans, the recent price action in silver is reminiscent of when the Hunt Brothers tried to corner the silver market in 1979 and 1980.

A Silver Market History Lesson: It's the week of the Super Bowl, where the Tampa Bay Buccaneers will face the Kansas City Chiefs. The Chiefs are owned by the descendants of the Hunt brothers.

Ironically, this week has brought an attempted short squeeze in the silver market. 

Lamar Hunt — father of current CEO Clark Hunt — and his two brothers Nelson and Herbert attempted to corner the silver market in 1979 and 1980.

The brothers, who amassed their fortune in the oil industry, were reported to own two-thirds of the private supply of silver.

With a worldwide shortage of the metal, the commodity began to rally from the $6 level to over $50.

The fiasco finally ended in early 1980 when regulators limited using borrowed money to fund silver purchases. Within a few months, silver swooned from $50 to $11.

On what is known as Silver Thursday (March 27, 1980), the family was unable to meet a $100 margin call and incurred $1 billion in losses during the forced liquidation.

The family was eventually bailed out by a group of banks that provided a $1.1-billion line of credit to the Hunt family, which allowed it to pay its broker (Bache) so it could avoid bankruptcy. Despite the huge loss, the family fortune was not completely wiped out.

As a result of pledging their oil assets, a large stake in Placid Oil, as collateral for the rescue package from the banks, the family was able to carry on.

Even though many of their assets besides oil, sugar and real estate continued to deteriorate in the 1980s, they managed to salvage $1 billion from their previous $5 billion fortune by 1988. 

Fast Forward 40 Years: Instead of the Hunt brothers, this time a contingent of retail traders is piling into silver futures and related assets in the markets.

The March Silver futures rallied from a Jan. 26 close of $25.50 to $30.35 earlier in Monday’s session.

At its current price of $29, silver has appreciated 13% over this short timespan.

Silver Moving Forward: Nobody knows how this will end. What's different about the latest silver rally is that the assets are being held by many as opposed to one family. 

From what we witnessed in GameStop Corp. GME and other issues, nothing can be ruled out.

This time, the large owners of the metal commodity are not on the wrong side of the trade.

In fact, many hedge funds, banks and other investment firms have large long stakes in the commodity and may be using the opportunity to harvest gains instead of sustaining losses.

For now, the current peak ($30.35) of the front-month futures contract coincides with its peak from August ($30.18) and has backed off to $29.

Will the army of online traders be able to nudge it past that major resistance level? Once again, who knows?