Revisiting the Silver Crisis

This paper examines the Silver Crisis of the late 1970s, which resulted in a $150 million lawsuit against the Hunt Brothers. In August 1988, the Hunt Brothers were found guilty by a jury of conspiracy, manipulation, monopolization, racketeering and fraud. Using a behavioural model, we aim to quantify the extent of manipulation in the silver market during the 1970s and the 1980s, with a specific focus on the period leading up to the Silver Crisis. Our behavioural model takes account of the role of fundamentals, manipulation and speculation. Our results indicate very little evidence of manipulation in the silver market in the run up to the Silver Crisis. Both fundamentals and speculation dominate the silver market during our sample, with speculation particularly important in the latter half of the 1970s. The distinction between manipulation and speculation is critical. While manipulation forces prices away from their fundamental value, speculation does not. Speculators certainly aim to take advantage of price changes but the actions are fully rational and consistent with the fundamental value of silver.