Comment: Most bullion dealers hedge

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Most bullion dealers hedge

Most bullion dealers hedge their inventories in the futures market. It's the only way to be in that business and sleep soundly at night. If they have 1000 oz of gold in stock, they'll buy futures shorting 1000 oz of gold in the paper market. If gold goes down they make in the futures market what they lose in the physical gold. If gold goes up they lose in the futures market what they make in the physical gold. This allows them to make their bid/ask spread no matter where the price goes. So in reality bullion dealers don't care which way the price goes, but they do want there to be lots of buying and selling.