Do Your Homework Before Investing in Bullion and Coins

RENO, NV – You may see the gold investment ads on TV or hear them on the radio. Or, you may get a call from a telemarketer-all touting precious metals as a solid investment.

However, the Federal Trade Commission (FTC) warns “some gold promoters don’t deliver what they promise, and may push people into an investment that isn’t right for them.”

“Sometimes these companies offer opportunities to speculate on the price movement of precious metals, or other commodities such as heating oil, without actually taking delivery of the commodity,” the Commodity Futures Trading Commission (CFTC) said.

“In our experience, these advertisements, infomercials, and telephone solicitations often promise quick riches, such as the ability to double or triple your initial investment in just two or three months, with low risks,” the CFTC noted. “Companies making such statements typically ask that customers pay only a small percentage of the total purchase price, and also claim that they (or another company) will purchase and store the metal.”

“These companies also pretend to arrange financing for the customer’s metal purchase so the customer can obtain a larger profit by controlling a larger amount of metal with their relatively small down payment,” said the CFTC.

“Companies often discourage customers from taking delivery of the metal and often charge a commission for the purchase transaction, a loan origination fee, an interest charge on the remaining balance (which accrues over time), and fees relating to storage and shipping of the metal they pretend to purchase  for the customer. Sometimes, not all of these fees are disclosed up front,” the agency noted.

The CFTC also urged consumers to use extra care when dealing with foreign companies.

“Ask where all the companies that would handle your funds are located, where any telephone call you receive originates, where your funds will be deposited and kept, and where the metal will be stored. If possible, telephone the company.”

The CFTC warned consumers that U.S. government agencies generally have little or no regulatory authority over entities operating outside of the country. “If you transfer funds to foreign firms, or place funds with United States firms that are later transferred to offshore companies, it may be difficult or impossible for you to recover your money.”

“Storing metal offshore, particularly in countries with secrecy laws, might make it difficult for you to verify your investment.”

The FTC urges consumers to “investigate before you invest.”

–Ask for the coin’s melt value.

–Consult with a reputable financial advisor you trust who has specialized investment knowledge.

–Shop around. Most banks offer gold bullion at lower markup than dealers. You can also enter the name of a bullion coin into an online search engine to compare prices from other dealers.

–Get an independent appraisal of the specific asset you’re considering.

–Consider other costs associated with the investment, such as insurance or a safe deposit box, or you may need to rent offsite storage to safeguard bullion.

–Be wary of buying bullion or bars that won’t be delivered to you, but instead to a “secured facility” by the seller or a third party. When you buy metals without taking delivery, you face risks the metal doesn’t exist, isn’t of the quality described, or isn’t properly insured.

–Walk away from sales pitches that minimize risk and sales representatives who insist that written risk disclosures are not necessary. Reputable sales reps are upfront about investment risks.

–Refuse to invest now. Any sales pitch that urges you to buy immediately is a signal to walk away.

–Checking out the company by entering its name in an online search engine. Read if other people have something to say about their experiences with the company.  Contact your state attorney general’s office and local consumer protection agency.

–Ask for a guarantee or certificate of authenticity for the bullion’s precious metal content. Research the company behind the guarantee because certificates of authenticity can be faked.

The FTC also warns that “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. …Indeed, private mints [may] issue coins that look like bullion coins minted by foreign governments, but may have little or no gold content.”

Typically, in a leveraged investment scam, a telemarketer or website will state that a metals price is about to skyrocket and that you can make significant profits by making a small down payment, often as low as 20%. The marketer claims that by only paying 20% of the purchase price, you can get more metal than if you had to pay 100% 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,” the FTC explained. “Rather than sending you a bill for those fees, the institution will reduce your equity in the investment.”

“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 mountain storage and interest charges,” the agency cautioned.

To file a complaint or get free information regarding precious metal physical bullion or coins sales, visit http://www.ftc.gov.

The agency enters consumer complaints into the Consumer Sentinel Network, an online database and investigative tool used by hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.

To report possible violations of commodity trading laws, go to the CFTC’s website and submit the following form: http://www.cftc.gov/ConsumerProtection/RedressReparations/InformationReportingForm/index.htm

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