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27/08/15
07:09
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Originally posted by timber1956
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"Why do you think the risk is with the 3-4k day traders? Aren't there other buying entities on COMEX?"
Because that is the way it was from 1985 when I first was involved in the gold futures, until 2006, when I got out of managing risk at an institutional level.
Large gold investors (like ETFs and central banks) with money to buy gold don't mess around with futures, paying for margins and delivery fees. They buy physical gold in the spot market because it is cost effective, private and they can get set for volume at a price. The players who buy gold futures either don't have the money to pay for the gold (day traders), or have better uses for their limited balance sheet resources (banks and hedge funds).
Banks and hedge funds use COMEX when it suits them. They aren't in there every day making markets. Their decisions to buy and sell usually finds its impetus away from COMEX, in the OTC markets or strategy development.
Then there are the "locals".
Collectively, they are in the market all day, everyday, making a very good living picking up the buy-sell spread on the large volume while running a bit of open risk on the side. That collective willingness to take a "bit of open risk on the side" spread across thousands with and average of $10 million of skin in the game, produces the extraordinary liquidity that so many gold bugs find alarming.
Who else is there?
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Not sure who else, but would have to be an entity that felt there was a buck in it, and they had the knowledge and the money to shape/influence the market and capture the buck? I have seen this in other markets that I know a lot better.