Investing in gold and other precious metals is one of the best ways to maintain your footing in an otherwise unstable economy. But while gold, silver, platinum (and their lesser known cousins ruthenium, rhodium, palladium, osmium, and iridium) have maintained their status as solid investments, you need to be wary of unscrupulous dealers and the many scams they perpetrate on unsuspecting investors.
What glitter isn’t always gold
Scams include anything from selling gold plated jewelry to polished hunks of metal that are made to look like gold bars. Selling bullion ETF’s and making customers believe they are buying real gold or silver when in fact this is not the case is another scam. Some companies are not even legally registered to sell precious metals. Last year, the Iowa Insurance Division (IID) issued a cease and desist order against a NJ based company called National Bullion Investors, LLC. The company was not legally registered and the investor who bought from them lost $5000. IID also took action against a Florida based company called Barron Trading Group for similar reasons.
If you are buying precious metals in the form of commodity futures or option contracts, the United States Commodity Futures Trading Commission (CFTC) recommends investors be careful of companies selling these financial instruments with promises of big gains and little or no risk attached. This is considered misrepresentation by the offending company and requires legal action. Companies selling these and other varieties of metal investments reach prospective investors through radio, television, newspaper ads or websites. Some even make cold calls to customer pushing for the purchase of gold, silver or platinum. According to the CFTC (cftc.gov), these companies will ask for various forms of fees such as commissions, interest charges, loan origination or storage and shipping fees that are not disclosed up front.
The sales pitches businesses use are not a problem, the problem starts when they overstate their ability to predict where the prices of precious metals will go and how little the customer is at risk of losing. When a company approaches you with an elevated sales pitch, talks down risk exposure and does not disclose fees from the start, these are all red flags.
Also, a big giveaway is the storage location of the metal. If the company refuses to clearly state where the metal is stored or gives you a runaround when you ask about it, there might be a problem. If the company you want to buy from does not say you are buying on “margin” or that you will have to send them additional funds if the price drops, start looking elsewhere.
Always search a company’s background in the Better Business Bureau (bbb.com). Here you can find out how reliable the company is, whether it has performed well in delivering services and products to customers and what complaints, if any, have been filed against them. The North American Securities Administrators Association (NASAA) can also assist your research. It is an international organization whose goal it is to protect the investor. For investors who have any issues regarding a scam, who want to look for information or wish to locate their state regulator and contact them directly, visit nasaa.org. You can also contact the National Association of Attorneys General through naag.org for updates in laws or issues that might affect your investments or for questions and concerns regarding scams. Questions about futures compliance could be addressed to the National Futures Association and to find out if your broker or firm is registered with the Commodity Futures Trading Commission (CFTC), go to nfa.futures.org/basicnet/.
If you are looking to buy coins, you are better off buying from a legitimate source like the US Department of the Treasury through usmint.gov. Gold bars can be purchased through a number of accredited manufacturers, for more information, go to Gold Bars Worldwide. Gold Bars Worldwide is sponsored by the global gold advocate World Gold Council gold.org that also gives research and statistical information on gold.
Amerigold is a known seller of gold, silver or platinum. The Better Business Bureau rated Amerigold with its highest grade of A+ for operating in a trustworthy manner and making good faith on resolving customer concerns. Silverseek.com and platinumguild.org are also reliable websites to look for information or retailers on silver and platinum.
Diversifying your portfolio with precious metals is a good option, but it has to done cautiously and after thorough research. Time of course is essential. As Paul Mladjenovic, the author of Precious Metals Investing for Dummies put it, “In a world of precious metals, the longer the term, the better your chances become for building wealth.”
Other resources to look into:
Investing in Gold: Invest.gold.org
National Mining Association: nma.org
International Monetary Fund: imf.org
Gold Anti-Trust Action Committee: GATA.org