Who can stop the madness of silver? Who brought down the Hunt brothers back then?

The silver market across the ocean is plunging into madness. On Friday, December 26, spot silver surged over 10%, approaching the $80/oz mark, and COMEX silver futures saw a weekly gain close to 18%. This round of “metal frenzy” is not limited to silver; gold has broken through $4,550, copper prices have reached historic highs following Shanghai copper, and platinum and palladium both posted double-digit gains. The market is pricing in a new narrative of “commodity control” and using it as a tool to hedge against the “AI bubble” and currency devaluation. However, behind the wild market moves, history’s warning bells have already sounded. On December 12, the Chicago Mercantile Exchange (CME) raised silver margin requirements by 10%. The historical precedents of the 2011 silver crash and the 1980 Hunt Brothers’ failed short squeeze show that when exchanges start limiting leverage, it often means the party is nearing its end. Meanwhile, domestic actions have also been taken. On December 26 Beijing time, the Shanghai Futures Exchange issued a notice to adjust the trading limits of gold and silver futures contracts to 15% and correspondingly raised margin requirements. This is the third round of risk control measures for silver futures this month following margin increases on December 10 and intraday opening quantity and fee adjustments on December 22. In response, analysts from CITIC Futures and Guosen Futures pointed out that while there are long-term bullish factors, a rapid short-term rise has clearly over-traded expectations. The scramble for capital has triggered a surge in speculative sentiment, making the market like “walking a tightrope at great heights.” 2011’s Lesson: Five Margin Hikes in Nine Days Burst the Bubble According to AdvisorPedia analyst Michael P. Lebowitz, the current silver trend is strikingly similar to the eve of the bubble burst in 2011. After the 2008 financial crisis, the Federal Reserve implemented zero interest rates and quantitative easing (QE), pushing real yields into negative territory. As a high-beta monetary hedge, silver soared from $8.50 to $50.00 in two years, a gain of 500%. However, this feast ended abruptly in 2011. Back then, the CME imposed five consecutive margin hikes within nine days for silver. This move forced massive deleveraging in the futures market, causing silver prices to plunge nearly 30% in just weeks. While physical demand did not disappear, the retreat of leveraged money was enough to crush prices. Afterwards, as QE2 ended and real yields rebounded, silver entered a long bear market. The Hunt Brothers’ Defeat: Rule Change and Liquidity Drought A more famous case happened in 1980—the notorious Hunt Brothers’ short squeeze attempt. AdvisorPedia reviews that in the 1970s, Nelson, Lamar, and William Hunt accumulated over 200 million ounces of silver worth more than $4.5 billion to hedge against inflation and dollar devaluation. Using leverage in the futures market, they managed to control huge positions at low cost, driving silver prices from $1.50 in 1973 to nearly $50 in early 1980. What finally stopped this runaway train was aggressive regulatory intervention. In January 1980, the CME promulgated “Silver Rule 7”, strictly limiting margin purchases and contract holdings for silver futures. This meant traders had to put up almost 100% cash to maintain positions, essentially eliminating leverage. Simultaneously, Fed Chairman Paul Volcker hiked rates to 20%, further raising borrowing costs. Under the double blow of margin calls and broken funding chains, the Hunt Brothers were forced to liquidate positions, ultimately losing over $1 billion and filing for bankruptcy. Silver prices crashed from $50 to $10 by the end of March. Fundamental Support Coexists With High Valuation Risks Back to the present—the fundamental logic supporting the current silver rally remains. Widely acknowledged market drivers include: 1. **Surging Industrial Demand:** Silver demand continues to grow for solar panels, electric vehicles, and AI data centers. 2. **Supply Shortage:** Silver has been in a supply deficit for consecutive years, with 70% of silver being a byproduct mineral and lacking output elasticity. 3. **Monetary Hedge:** Investors use precious metals to hedge fiscal deficits and currency devaluation risks. However, valuation indicators have issued warnings. The current “silver/oil ratio” is at a historical high, suggesting either oil is due for a catch-up rally or silver faces a correction. While the “gold/silver ratio” still shows silver is cheap relative to gold, excessive leverage remains the biggest vulnerability. Analyst Michael P. Lebowitz warns that no matter how strong the fundamentals, once the market becomes highly leveraged, risks rise dramatically. CME or regulators could, as in the past, “pull the ladder of leverage” from beneath speculators at any time. For investors, history’s lesson is: Fool me once, shame on you; fool me twice, shame on me. Risk Disclosure and Disclaimer The market involves risks; investment needs caution. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions herein fit their specific circumstances. Investment based on this article is at your own risk.