Investing in the 'Devil's Precious Metal'... Hit the Jackpot or Lose It All [News Seolcham]

Notorious for Extreme Volatility: Silver Prices
Even Legendary Investors Have Struggled

Editor's Note'Seolcham' is a newly coined word meaning, "refer to the explanation for more details." In [News Seolcham], we highlight parts of the news that require fact-checking or further explanation, providing more in-depth context.

Silver, which has recently captured the attention of investors with repeated price surges, holds a unique position as both a precious metal and an industrial commodity. Silver has long been notorious for its high price volatility. Even legendary investors have sometimes been wiped out in an instant due to silver's volatility, while others have amassed enormous wealth.

A Unique Position, Futures-Driven Market... The Highly Volatile 'Devil's Metal'

The price of silver soared by around 180% from its low in April last year to the end of the year. On December 29 (local time), at around 8 a.m., the spot price of silver surged to $82.85 per ounce, but then plummeted by 9% within just a few hours, showcasing the extreme volatility that earned it the nickname "devil's metal."

Silver bars displayed on the precious metals street in Jongno-gu, Seoul. Photo by Yonhap News

Among commodity and metals investors, silver and nickel have long been called "devil's metals." Their high volatility has caused significant losses for many investors. Silver is both a precious metal-a store of value-and an industrial commodity used in various advanced devices, making it highly sensitive to economic cycles. In addition, silver's relatively small liquidity-about 16% of gold's market capitalization as of December this year-and a price structure driven mainly by futures contracts rather than spot trading, further amplify its unique volatility.

Attempt to Monopolize the Silver Market Ends in Ruin... The 'Silver Thursday' Incident

The peak of silver price volatility occurred on March 27, 1980, a day known as "Silver Thursday." On this day, the Hunt brothers, American investors and financial criminals, attempted to corner the silver market but were forced to liquidate their positions. From 1979 to early the following year, the brothers accumulated one-third of the world's silver holdings through futures contracts. As a result, on January 18, 1980, the price of silver hit $49.45 per ounce-a 713% increase compared to the previous year.

The Hunt brothers, who accumulated one-third of the world's silver holdings through futures contracts. Global Bullion Supplier homepage

The Hunt brothers were able to continuously purchase silver by using leverage. As the price of the silver they held rose, they used it as collateral to borrow from banks and enter into more futures contracts. Unable to ignore this any longer, the international precious metals exchange COMEX raised margin requirements for silver futures, and the Federal Reserve also tightened credit related to silver.

Afterward, silver prices plummeted, and the Hunt brothers, unable to repay the loans secured by their silver holdings, faced margin calls and liquidation. The price of silver crashed from $48 per ounce in January 1980 to just $10.20 on March 27. The bankrupt Hunt brothers were ordered to pay damages for market manipulation and disruption.

Even Buffett Once Accumulated as Much as a Year's U.S. Production: "Sold Too Soon"

Warren Buffett also heavily bet on silver price increases in 1997, but his investment performance was not good. Warren Buffett. Photo by EPA Yonhap News

Warren Buffett, the legendary investor known as the "Oracle of Omaha," also invested in silver.

In 1997, he wrote in the Berkshire Hathaway shareholder letter, "We purchased 112 million ounces (about 3,500 tons) of silver. This position generated a pre-tax profit of $97.4 million," adding, "Although I had tracked silver's fundamentals for years, I had never held it. But as silver inventories declined in recent years, I judged that prices would have to rise to balance supply and demand." This amount was equivalent to the annual silver production from U.S. mines that year, according to estimates by the Silver Institute, an international silver industry organization.

Berkshire Hathaway sold all of its silver holdings in 2005. While it did not incur a loss, the investment performance was not impressive. At the 2006 shareholder meeting, Buffett admitted, "We have now sold all our silver, but frankly, we did not make a lot of money. I bought too early and sold too early." Silver prices soared nearly sixfold over the five years following Buffett's sale.

The 2011 Crash That Divided Decade-Long Partners

George Soros and Jim Rogers, who are counted among the world's top three investors alongside Buffett, had diverging fortunes over silver. The two had been business partners for a decade, managing the Quantum Fund hedge fund together and achieving a 4,200% return, but in 2011, their views on silver differed.

Jim Rogers (left) and George Soros. Jim Rogers Holdings, George Soros official websites

In several international media interviews in December 2010, when silver was trading in the $30-per-ounce range, Rogers stated, "I believe silver prices will rise to $50," and said he would continue investing. Silver prices soared to $49 by mid-April the following year, but after the Wall Street Journal reported that a fund managed by Soros had sold most of its gold and silver holdings, the price plunged about 26% in just one week. The steepest drop came on May 5, 2011, when silver fell by 8% in a single day. At the time, the Financial Times commented, "It was the biggest correction in silver since the Hunt brothers incident."