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Below is a summary of my 15-page special report, "Classic Gold
Scams and How to Avoid Getting Ripped Off." If you'd like to learn more
and receive a free download of the full report, go to www.goldscams.com.
I've always advocated that investors hold at least 5-10% of their
portfolios in physical precious metals. With major Western nations now
defaulting on their debts, more and more investors have decided it's time to
take my advice and own an asset that doesn't depend on the solvency of an
ETF, bank, or government.
Unfortunately, with all these news buyers in the gold market, there is
ample opportunity for dishonest firms with big advertising budgets and
celebrity endorsements to make a quick buck.
If you are thinking of buying gold or silver for investment,
diversification, or asset protection reasons, this quick guide will help you
avoid common scams and pitfalls.
The Numismatic Bait and Switch
The most important concept for new gold & silver investors to
understand is the difference between bullion coins and numismatic
coins.
· Bullion coins are those that derive their value almost entirely from their metal
content.
If a bullion gold coin is priced at $1800/oz, it's
because it contains close to $1800/oz worth of gold.
· Numismatic coins derive some or all of their value from being "rare" or
"collectable."
If a gold numismatic gold coin is priced at
$3600/oz, it probably still contains only $1800 worth of gold, and the rest
is a premium for the coin's aesthetic qualities.
If you want to invest in precious metals, you want bullion
coins or bars. If you want to build a coin collection for sentimental or
historical purposes, you want numismatic coins. A buyer should always
know which is which, and purchase accordingly.
The problem is that most coin dealers want to confuse you about this
distinction.
Very few gold dealers make their living selling bullion coins.
Instead, they bait you with bullion to get you on the phone, and then
convince you in various ways to switch your purchase to numismatics - because
their profit margin on these "rare" or "collectible"
coins is vastly higher.
Just like buying an Armani suit is not an investment in wool,
numismatics are not an investment in gold. Look what
central banks and smart investors around the world purchase. Open their
vaults and you will not find rare collectors' pieces; instead, you'll find
bars of solid, bullion metal.
Unless you're a very serious coin collector with specific knowledge of
the numismatic world, stick with bullion coins like the American Gold Eagle,
Canadian Maple Leaf, or Krugerrand.
The Confiscation Con
One of the main techniques a metals broker will use to
"switch" you to numismatics is to talk about President Roosevelt's
"confiscation" of gold - and then claim that only their coins are
exempt. This is baloney.
When Roosevelt issued his order, the US was on a gold standard, so
confiscation was a necessary part of his plan to devalue the dollar. Now, the
dollar is backed by nothing, so that reason no longer applies. If the
government finds another reason to confiscate your assets, they will likely
be coming after everything (land, stocks, cars, etc.), and at least gold is
easy to conceal.
The reality is that no gold was forcibly confiscated in the
1930s. There was a single case of a New York attorney prosecuted for trying
to withdraw gold from a safe-deposit box, but it was thrown out on a
technicality. Yes, the law made it impossible to conduct official business in
terms of gold for some 70 years, but the average investor's personal stash
was safe and sound.
However, to debunk this claim on its face, all you have to know is
that almost all of the "numismatic" coins being sold by these scams
dealers wouldn't have qualified as "rare and unusual" under
the terms of Roosevelt's order. Most are simply old coins that were minted en
masse by historic empires, like Austria-Hungary, the British Empire, and the
French Empire. They are genuinely old, but about as rare as a ballpoint pen.
Proof Sets and Commemorative Sets
Be wary of anything using the term "collectible,"
"proof," or "commemorative," as they often indicate a
severe rip-off.
- Proof Sets - Many of these sets consist of legal tender
coinage, which contain no precious metals at all! After attempting to
invest in gold and silver, you might be left with a nicely packaged set
of US coins worth about 91¢.
- Commemorative Sets - You've probably seen commercials for
commemorative coins "plated with gold or silver recovered from the
vaults beneath the Twin Towers after 9/11." This is all part of the
strategy to distract you from the fact that the coins are essentially
worthless.
Once you get into buying proof sets or anything
"commemorative," you have moved far away from any investment
objective. These products may be appropriate for gimmicky Christmas gifts,
but not for a serious portfolio.
The Leverage Trap
In a leveraged account, the dealer lends you money to buy gold. This
can be very hazardous.
Gold can be volatile in the short-term, and if it drops in price,
you'll likely be asked to send in more cash for a margin call. If you
don't, the dealer will sell your gold at wholesale prices to cover the
debt.
Further, you'll have to pay commission on the entirety of the
purchase, eating into the amount of metal you receive. And let's not forget
the interest and various fees which you'll pay, even if the price of the
metal falls.
A quick Googling of the subject will show
many people who have lost their entire investment by getting involved in
these schemes.
The simple rule is: you shouldn't purchase financial services from a
metals company.
Investment Grading and "MS-70"
Many coin dealers are selling bullion coins with an "MS-70"
(mint state, flawless) rating at multiples of the price of an ungraded coin.
Our research uncovered one company selling 2011 American Silver Eagles with
an MS-70 grade for $129. My company, Euro Pacific Precious Metals, sold the
exact same coin for $35!
Grading is only meant for collectors buying genuine old and rare
coins. When it comes to bullion, all you need to care about is the weight of
pure precious metal. After all, do you care if the change in your pocket has
a bright, shiny finish? No! Because it is meant to circulate as money. Gold
and silver bullion coins are money, not collectors' items.
Don't Be Fooled
If you're trying to invest in precious metals, then stick to bullion
coins or bars. Don't be distracted by numismatics, rare coins, collector's
items, or fancy packaging or grading schemes.
I founded my bullion dealer, Euro Pacific Precious Metals, because as
a career-long stockbroker and CEO of a mid-sized brokerage firm, I was tired
of hearing horror stories from my clients who I had advised to buy physical
precious metals. Even though I have long warned of the dangers of the
industry, it is hard for retail investors not to be led astray by
high-pressure salesmen.
Reading this guide is a step in the right direction. However, I
encourage you to read my in-depth report on common scams and ripoffs, available as a free download at www.goldscams.com. Find out the 4 questions you can ask to tell
whether you're talking to a scam dealer. Track the performance of rare vs.
bullion coins over the past 10 years. Learn how quickly $5,000 can disappear
when invested in a leveraged account. There's no reason you should learn
these lessons the hard way.
My hope is that by educating the gold-buying public, gold will come to
be seen for what it is: a true safe-haven in a stormy economy.
Good luck, and good gold!
Peter Schiff is CEO of Euro Pacific Precious
Metals, a gold and silver dealer selling reputable, well-known bullion coins
and bars at competitive prices. To learn more, please visit www.europacmetals.com or call
(888) GOLD-160.
For
the latest gold market news and analysis, sign up for Peter Schiff's Gold Report, a monthly
newsletter featuring original contributions from Peter Schiff, Casey
Research, and the Aden Sisters. Click
here to learn more.
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