What’s Hoarding?
Hoarding is when a speculator buys and stores enormous amounts of a product to profit from future price increases. The phrase hoarding often refers to purchasing commodities, particularly gold. Others utilize hoarding in economic circumstances. Political leaders may protest about speculators stockpiling money amid a currency crisis.
Understanding Hoarding
Many blame hoarding for causing real-economy shortages. Hoarding can lead to speculation, self-fulfilling prophecies, and inflation.
Wheat prices will rise if wealthier people stockpile them. Middle-class merchants will notice and may hold back wheat in expectation of price hikes. That warrants price hikes again. Panicked buying may cause wheat shortages. If the cycle continues, some of the poorest countries may starve.
Government measures such as price restrictions, fixed exchange rates, and hoarding can generate shortages.
Illegal Storing
Particular sorts of hoarding are typically illegal to avert disasters and economic instability. A speculator who tries to corner a commodity may be breaking the law. Unfortunately, traders and regulators struggle to separate hoarding from illegal market manipulation.
Hoarding gold bullion, coins, or certificates above $100 became a crime in 1933. In 1974, gold bullion was allowed again in the US.
Hoarding vs. Investing
The economy suffers from hoarding because it hinders commodity utilization. Investing can boost commodity and product production.
Wealthy Warren Buffett said, “Africans mine gold. We melt it down, dig another pit, bury it again, and pay guards. It’s useless. Anyone observing from Mars would be confused.”
Stocks outpaced commodities over time. However, commodities outperformed equities for decades.
Market Hoarding Examples
Hoarding silver
A notable example of hoarding happened in the 1970s and 1980s, when the Hunt brothers attempted to dominate the silver market. Nelson Bunker and William Herbert Hunt rightly projected growing inflation, but they overleveraged and were unprepared when prices plummeted.
In the 1970s, the Hunt brothers acquired much of the market’s physical silver inventory and eventually shifted to futures contracts. Starting in the 1970s, silver cost less than $2 per ounce. By early 1980, the brothers had raised the price of silver to about $50 per ounce. After that, the Hunts couldn’t borrow money to buy silver and raise prices.
The Hunt brothers sold, and fear drove the price of silver to plummet. Nelson Bunker and William Herbert Hunt filed for bankruptcy in 1988.
Copper Storing
Known as Mr. Copper, Sumitomo Corporation commodities trader Yasuo Hamanaka sought to control copper prices by hoarding. More than ten years of illicit copper dealings in the 1990s cost him $2.6 billion and seven years in prison.
He once had 5% of the world’s copper. Traders called him “Mr. Copper” or “Copper King.”
HODL’ing
HODL refers to the buy-and-hold strategy for cryptocurrencies, originating from the misspelling of “hold” in the context of Bitcoin. It characterizes Bitcoin holders as hoarders who hoard to accumulate rather than sell or trade.
Hoarding can raise bitcoin prices since digital currencies are rare and have a low unit production rate.
Conclusion
- Speculators hoard commodities to profit from price hikes.
- Hoarding can cause speculation, self-fulfilling prophecies, and inflation.
- Particular sorts of hoarding are typically illegal to avert disasters and economic instability.
- Stocks outpaced commodities over time.
