Attempts to “corner” a metal market invariably end in tears, if not jail time, which is what happened with silver in 1980 and copper in 1995, so when the market in nickel “inverted” last week warnings were issued that an old game was being played in one of the new generation of battery metals.
The term inverted essentially means that the short-term price of a product, whether a metal or a government bond, rises above the long-term price, which is unnatural and a sign of trouble ahead. An inverted bond yield can be interpreted as a recession pointer.
Three Brothers And A Silver Plan
Silver had its crisis when three brothers who were heirs to the Hunt Oil fortune acquired, or attempted to acquire, one-third of the global supply of the metal.
Unfortunately for the Hunts, they used a lot of debt, and when commodity exchanges changed the rules, they faced expensive margin calls, followed by a Securities and Exchange Commission investigation, a $1 billion loss and eventual bankruptcy.
The copper cornering of the mid-1990s was a re-run of the game, with variations, but essentially involved a metal dealer working for Sumitomo, a Japanese trading company, buying physical copper, plus taking options and futures positions, to control an estimated 5% of the world’s copper, enough to dictate price movements in a relatively illiquid market.