The year was 1971 and inflation was on the rise. In the past, investors and average citizens alike had long turned to gold coins and bullion as a store of wealth. There was one little problem this time around: The United States had abandoned the gold standard, and at the time, it was illegal to own gold bullion.

Brothers Nelson Bunker Hunt and William Hunt, sons of the legendary oilman H.L. Hunt, had a plan.

In 1973, the Hunt brothers began purchasing silver futures contracts. Not satisfied to stop there, the brothers decided to hold many of the contracts to maturity and take actual delivery of the metal, an unusual tactic in a market in which virtually all positions are offset before the contracts expire.

The strategy seemed to work: between 1973 and 1979, prices had gone from $1.95 to $5.

The brothers figured if they bought enough silver, they could corner the market. By 1979, they had nearly succeeded. That year, prices rose to more than $50 an ounce, and the Hunt brothers were rumored to hold about one-third of the world's silver supply in storage.

But the story doesn't end there.

With prices so high, people began selling all the silver they could get their hands on. Prices plummeted -50% in four days. The Hunt brothers had overleveraged themselves to the point that when margin calls came in, they were left holding the bag.

The Commodity Futures Trading Commission would later change the rules regarding margin trading and charge the Hunt brothers with manipulating the silver market. Lawsuits ensued, and the Hunt brothers were forced to pay millions in fines, back taxes and interest as a result. All told, it's estimated the brothers lost more than $1 billion in the endeavor.

I bring up this story not for your entertainment, but for an important lesson -- three to be exact.

• Lesson #1: Leverage can break you. It's regrettable, but 30 years later it seems much of Wall Street still hasn't figured this out. When used by experienced investors, a little leverage can juice returns. Just don't get too greedy.
   
• Lesson #2: Uncle Sam can change the rules. Investors: plan accordingly.
   
• Lesson #3: In times of inflation, gold is good. But sometimes silver is better.

StreetAuthority expert Nathan Slaughter has been preaching all three of these lessons. Recently he cautioned readers about the dangers of leveraged funds and efforts by the feds to ramp up regulation in the commodities markets. He's also warned investors about the devastating effects of inflation.

Nathan is also bullish on silver. And for good reason: It's actually outperformed gold. Yet, despite the run up this year, it's still trading for about 1/60th the price of gold -- a low ratio on a historical basis.

Besides being a store of wealth, silver has a host of real-world uses ranging from medicine to the new 3-D screens being used in movie theaters. All told, industrial applications use 60% of the world's silver supply each year. When the global economy gets back on track, demand will jump.

There's one way to play this, pure and simple: buy silver.

Until recently, that was easier said than done. But Nathan has found a unique investment that gives you the upside of silver bullion without any storage or insurance costs. It doesn't mess around with futures contracts and doesn't use any leverage, either.

It's already returned +13% since he recommended it, and since we think silver could rally another +50% from here, there's plenty of upside if you get in today. Click here to learn more about this unique way to profit from silver.

Brad Briggs
Staff Writer
StreetAuthority

Disclosure: Brad Briggs does not own shares of any security mentioned in this article.

 

Related Topics: silver, gold, commodities

 

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