If you are currently considering the purchase of gold bullion, you need to research your options and invest some time into gaining the knowledge necessary to make an informed decision. To do otherwise is an open invitation to becoming the victim of costly errors and serious consequences at the hands of gold scammers and hucksters.
Bullion consists of a quantity of a precious metal, usually gold, silver, platinum or palladium, assessed by weight and purity, usually cast as ingots, bars, or coins and sold by major banks and gold and silver bullion dealers. Almost all bullion will have a purity of greater than 90%.
Bullion coins, as distinguished from numismatic coins, are minted from precious metal, usually gold, platinum or silver, and bought for investment purposes from major banks, coin dealers, brokerage firms, and precious metal dealers. Their primary value is based on the content of precious metal contained in each item. Prices fluctuate constantly as trades are made on the world’s metal markets. Numbering among the best-known bullion coins are the American Gold Eagle, the Canadian Maple Leaf, the Australian Kangaroo Coin, and the progenitor of the bullion coin, the South African Krugerrand.
Investing in bullion or bullion coins can be a big, expensive decision. Consider the following points:
- Know the items melt value. The weight of precious metal in any bullion or collectible coin is widely available. Just multiply the weight times the current spot price, and you will have the melt value.
- Find a reputable financial advisor you trust who has specialized precious metals investment knowledge. Try finding other investors, and ask about their experiences.
- Shop around. Most banks offer gold bullion, sometimes with a lower markup than dealers. For coins, you can search for other dealers who sell them or you can look at recent sales of the coins on EBay.
- Get an independent appraisal of the specific item or assets you’re considering. The seller’s appraisal could be inflated.
- Consider any additional costs associated with a bullion investment. Insurance may need to be purchased or a safe deposit box rented, or you may need to arrange for offsite storage to safeguard your bullion. These costs will cut into your bullion’s potential returns. Homeowner’s insurance may have limits on the amount of gold they will insure, or you may need an additional rider – you will need to check with your insurer. Check about bullion or jewelry insurance as a separate policy. You may get a better price compared to a rider on your homeowner’s insurance.
- Be wary of buying bullion that won’t be delivered to you, but rather sent to a secured facility by the seller. Without taking delivery, how do you know the metal even exists, is of the quality described, or is properly insured.
- Beware of sales pitches that minimize risk or claim that any written risk disclosures are mere formalities required by the government, and therefore unnecessary. Reputable sales reps are upfront about the investment risks involved with your purchase.
- Refuse to be goaded into an immediate decision, regardless of the consequences. Remember, bullion is a commodity item, there is plenty of it out there, available from a large number of sources.
- Research the seller. Enter the company’s name in a major online search engine. See if other people have something to say about their experiences purchasing from the company. Try to communicate offline if possible to clarify any details. In addition, contact your state Attorney General and local consumer protection agency. Checking with these organizations in the communities where promoters are located is a good idea, but realize that it isn’t fool-proof: it just may be too soon for someone to realize they’ve been defrauded or to have lodged a complaint with the authorities.
- Ask for a guarantee or certificate of authenticity for the bullion’s precious metal content. Research the company behind the guarantee or certificate because certificates of authenticity can be faked.
Avoiding Scams and Rip-offs
Gold and silver bullion scams often involve false claims about value, content or rarity:
False Claims – An unscrupulous seller may overprice their coins, lie as to the bullion content, or pass off ordinary bullion coins as rare numismatically valuable collectible coins. Some fraudulent dealers may even try to sell coins that aren’t bullion coins at all or are only plated with gold. Others may try to sell bullion pieces produced by private mints with the same design as coins from the U.S. Mint and the mints of other governments, but in different sizes. Your best defense is to research the market and choose your seller carefully.
Leveraged Investment Scams – Leveraged investments are high-risk investments that can result in the loss of even more money than you originally invested. The typical scam features a telemarketer or website stating the the price of gold is set to skyrocket and that heir special “insider” knowledge with guarantee you significant profits. You need only put down small payment for the metal, maybe as low as 20 percent. This allows you to control more precious metal, and reap greater profits.
You have, however, borrowed money – perhaps as much as 80 percent of the metal’s purchase price – from a financial institution that claims it will hold the metal for you, and charge you monthly storage fees and interest charges. Instead of billing you directly for these fees , your equity in the investment will be reduced an equal amount. If your equity falls below a certain level (for example, 15 percent of the current market price), the financial institution will issue an equity or margin call, requiring the payment of additional funds to bring your equity to their minimum requirement. Failure or refusal to pay results in the lender selling the metal to pay off your loan. If the loan is not fully covered by the sale proceeds, you will get an additional bill for the difference.
Leveraged investments are high-risk because you are subject to equity calls if the price of the metal fails to increase sufficiently to offset accruing storage and interest charges.
