How Gold Fraud Occurs
Most people have their investments somehow tied to the stock market. Because this is such a huge network of money, that market has a lot of oversight. There is really no such oversight in the gold market, and just about anyone with some time and money can open up a coin or gold shop. They may try to claim “buyers beware,” but the fact is if they are tricking people into buying their product, they are committing fraud.
The most common way that these fraudsters trick their customers into making purchases that are not suitable is by using high pressure sales tactics. They will make false claims about the value of gold, and entirely fictitious claims on what gold will be worth in the future. Since senior citizens are often on fixed incomes, they want to make sure that their money is going to be safe. Those dealers that are trying to take advantage of them will play their emotions to sell them a product for far more than it is really worth.
Gold Bullion Prices
Just like stocks, the price of gold bullion fluctuates daily. In fact, the price fluctuates throughout the day. Because of this, it is difficult for dealers to put a set price on the gold coins they have, with many opting take the average price for the last week or so, and adding up to 10% for their profit and to cover fluctuations. These prices are often adjusted daily or at least every couple of days.
Many of those attempting to scam potential customers will give false information about the price of gold, and end up charging the customer more than they should be paying. This can work in two different ways.
The first way that a dealer can commit gold coin fraud is to artificially inflate the price of gold. Suppose gold is selling for $1,250 per ounce, the dealer may show false information that claims gold is going for $1,400 per ounce. With the markup he or she could try to sell the coins for $1,500 each when they should be selling for under $1,400.
Another way that gold coin fraud is committed is by lying about the appreciation rate of gold or gold coins. Suppose gold has gone up by 2% in the past week, the dealer may say that all indicators show it will continue this increasing trend, and by this time next year the value would have doubled. Or the dealer may say that the particular coin that you are buying is rarer than others, and its value is increasing more rapidly than other coins. Either way, there is no way to accurately tell how much gold will appreciate at any given time.
Gold bullion prices vary every day. So it is not unusual to go into a coin or gold dealer and see a different price each time you go in. However, before you do, you will want to do some research to make sure that you are not being taken advantage of.
Common Gold Coin Scams
There are hundreds of ways that you could possibly be scammed or defrauded. Fortunately some are so intricate that they are rarely used, others don’t work that well. So those unscrupulous coin dealers are left with a handful of common tactics that if you are aware of them, you can avoid them.
Packaging
The easiest way to get you to buy a coin not worth as much as claimed is to put it in a pretty package. The dealer may claim the package is to help protect the coin and preserve its value longer, which is true, but the actual intent is to obscure the item. The packaging can make a coin that is actually a gold-copper alloy look as though it is pure gold.
To combat this: always insist that you inspect the item closely before agreeing to purchase it.
Phantom Gold
Suppose you are buying $50,000 worth of gold, you probably don’t want to keep that much gold in your house. So the dealer offers to store it on site for you in their state-of-the-art safe. The scam here is that they don’t actually have the gold. The might show you gold coins, and claim you have that amount in the safe, but it doesn’t really exist.
To combat this: never store your gold on site. Always take physical possession of the product and rent a safe deposit box if you don’t want it at home.
Miss-Graded Coins
All coins are graded to determine their value. This grading system is supposed to be done by a neutral third party, but some dealers will try to grade their own coins. In order to sell them for more, the dealer might claim the coin is a higher grade than it really is; you could end up spending thousands more than the coins are worth.
To combat this: Have a third party appraiser look over any purchases. If they appraise for less than you paid, then return the coins.
Inflated Gold Values
The price of gold fluctuates daily. This means the value of the coins will also fluctuate. Some dealers will show you false data on the value of gold, or falsely claim that the value of gold is appreciating faster than it really is. After paying the inflated price and the dealer markup, you may end up spending a lot more for the coins than they are valued at.
To combat this: check the price of gold before leaving the house to make any purchase.
Rush to Decision
The biggest way that people are pressured out of their money is by rushing to make a decision. The sales person will claim it’s a limited time deal, or that someone else is on their way in to buy it, and if they don’t do it now it will be gone forever. Gold is gold, comparison shop before making a purchase.
False Gold
Those who really want to scam others will actually go as far as selling a coin that looks like gold, but really is not. They won’t tell the buyer, and in the end they sell just a few dollars worth of metal for hundreds, or even thousands, of dollars. The buyer doesn’t know any better until he or she tries to sell their coin.
Lack of Refunds
All sales are final is not something that you want to hear when you buy gold. Any gold dealer that will not let you return the coins or bullion has something to hide. You should be able to buy the gold and take it to a third party appraiser. If the appraisal comes back significantly different than what you paid for it, then you should be able to return it.
Things to Keep In Mind before Buying Gold
Any time you make a decision to purchase an investment, you should never rush into that decision. Gold is no different. Before you make the decision, help avoid being scammed or falling victim to one of the many gold frauds out there and keep these tips in mind.
Inspect the Product
If you are buying a gold coin, ask to inspect the coin out of its packaging. Some scammers like to put packaging on their coins to hide the fact that they are not 100% gold. If the seller does not want to let you inspect the item, walk away.
Storing Your Gold
There are a lot of people hesitant to store gold at their homes where it can be stolen. Some dealers will offer to store your gold at the store for a small fee. Their scheme is that they don’t actually have the gold. They will sell you thousands of dollars worth of gold and tell you that it is being stored safely, but it doesn’t really exist. Spend an extra $20 each year and get a safe deposit box at the bank.
Inflated Prices and Appreciation
Gold is gold. The fact that it is stamped into the shape of a coin does not make it significantly more valuable (certain exclusions do apply, for instance if it is an older coin). Likewise just because it is an American Gold Eagle or Gold Krugerrand does not mean it will appreciate significantly faster than the cost of the bullion.
Shop Around
Unless you are hunting for rare gold coins, most dealers will carry gold. It is wise to check the prices at several different locations in order to avoid being scammed at the first one you go to. Likewise, check online to see what gold is selling for and what the spot price is.
Avoid Pressure
You are the one making the decision to buy gold. You should not have to deal with high pressure sales tactics. If you feel pressured, walk away and find a different dealer. Be especially wary of those claiming you must make a decision immediately.
Investing In Gold without Being Scammed
Investing in gold can be a safe way to hedge your other investments. How much of your money you want to invest in gold is up to you. Keep in mind that if you would rather not take possession of the physical gold, you can always invest in Gold ETF’s. They work like a stock, but track the price of gold bullion.
Recourse if You are a Victim of Investment Fraud
If you have been the victim, or you feel you have been the victim, you should take action immediately. Your financial loss may not have been your fault.
Written Complaint
Your first course of action is to write a written complaint to the broker with whom you are working. Make copies and send one copy to the broker and one to the managing director for the firm. Often this is all that is needed.
Contact the SEC
The SEC is set up to monitor and oversee investments. They have a lot of power and help you get out of tough situations. If the fraud runs deep, as in the entire firm is scamming people, the written complaint won’t work. Instead, you have to go to the regulators.
Hire an Attorney
Sometimes the only way to get your money back is to hire an attorney from Arentz Law Group. With legal help you can recover part or all of your financial losses.
Contact Arentz Law about Your Investment Fraud
If you have been the victim of investment fraud, you should not just ignore the problem. Even if your loss was just a couple hundred dollars, it is important to expose the fraudsters and stop them from scamming others out of even more money. If you need help recovering your losses, schedule your free consultation with an attorney from Arentz Law Group P.C. today by calling 1-800-305-6000, or by filling out the contact form on this page.
