Tip-Offs to Rip-Offs

Bullion scams often involve false claims about content, rarity or value:

False Claims – Unscrupulous sellers often overprice their coins, lie about the bullion content, or try to pass off ordinary bullion coins as rare collectible coins. Some fraudulent dealers may even try to sell coins that aren’t bullion coins at all. Others may try to sell bullion pieces with the same design as coins from the U.S. Mint, but in different sizes. Indeed, private mints issue coins that look like bullion coins minted by foreign governments, but may have little or no gold content. Your best defense is to study the market and choose your dealer carefully.

Leveraged Investment Scams – Leveraged investments are high-risk investments that can result in the loss of even more money than you originally invested. Typically, in a leveraged investment scam, a telemarketer or website will state that the price of metal is about to skyrocket and that you can make significant profits by making a small down payment for the metal, often as low as 20 percent. According to the marketer, by paying only 20 percent of the purchase price, you can get more metal than if you had to pay 100 percent of the purchase price.

In reality, you have borrowed money – as much as 80 percent of the purchase price of the metal – from a financial institution that claims it will hold the metal for you, and charge you monthly storage fees and interest charges. Rather than sending you a bill for those fees, the institution will reduce your equity in the investment. Once your equity falls below a certain level (for example, 15 percent of the purchase price), the financial institution will issue an “equity call,” requiring you to pay additional money to bring your equity above the equity call level. If you can’t pay or refuse to pay additional money, the lender will sell the metal to pay off your loan and send you a bill if the sale of the metal does not cover the amount you owe.

These investments are high-risk because you will receive an equity call if the price of the metal goes down, stays flat, or simply doesn’t go up enough to offset the mounting storage and interest charges.

Investigate Before You Invest

Whether you are buying gold stocks and funds, bullion and bullion coins, or collectible coins, the FTC says do your homework first:

  • If you are buying bullion coins or collectible coins, ask for the coin's melt value – the basic intrinsic bullion value of a coin if it were melted and sold. The melt value for virtually all bullion coins and collectible coins is widely available.
  • Consult with a reputable dealer or financial advisor you trust who has specialized knowledge.
  • Get an independent appraisal of the specific gold product you're considering. The seller's appraisal might be inflated.
  • Consider additional costs. You may need to buy insurance, a safe deposit box, or rent offsite storage to safeguard bullion. These costs will cut into the investment potential of bullion.
  • Some sellers deliver bullion or bars to a secured facility rather than to a consumer. When you buy metals without taking delivery, take extra precautions to ensure that the metal exists, is of the quality described, and is properly insured.
  • Walk away from sales pitches that minimize risk or sales representatives who claim that risk disclosures are mere formalities. Reputable sales reps are upfront about the risk of particular investments. Always get a receipt for your transaction.
  • Refuse to "act now." Any sales pitch that urges you to buy immediately is a signal to walk away and hold on to your money.
  • Check out the seller by entering the company's name in a search engine online. Read about other people's experiences with the company. Try to communicate offline if possible to clarify any details. In addition, contact your state Attorney General and local consumer protection agency. This kind of research is prudent, although it isn't fool-proof: it may be too soon for someone to realize they've been defrauded or to have lodged a complaint with the authorities.