Video: Silver & Gold Dealer Hedging?

JM Bullion - JM Bullion is pleased to release a new free InfoGraphic on the often unknown and nuanced topic of silver and gold dealer hedging. We created this new free InfoGraphic to help transparently educate bullion buyers on how hedging works.

All silver and gold dealers have to remain careful that they are not caught on the wrong side of big spot price swings. During times when there is extreme downward price volatility, understandably, many people get confused about how Silver & Gold dealers make their profits. A hedge consists of taking an offsetting position in a related security, such as a futures contract or through FOREX trading, to reduce price risks. It is the obverse of speculative action, going long or short in a market.

Most brick-and-mortar local coin shops and even many online dealers do not hedge their inventories using futures contracts for instance. Many dealers simply take long positions within the market, by buying or already owning physical inventory to begin their business. Most times, their intention is to dollar cost average their inventory price points as low as possible, while continually selling to the public in the hopes of making a profit on the premiums they charge.

The world's largest physical bullion dealers hedge their multimillion-dollar inventories to reduce the risk of adverse price movements in the precious metals they physically own, sell, and deliver to customers. Dealers that do not hedge, or are not big enough to justify trading futures contracts, run the risk of being wiped out by big and unanticipated market movements. JM Bullion hedges its inventory using futures contracts to ensure that even if spot prices plunge quickly, we remain financially stable and secure.