Top 7 Precious Metals Scams to Watch Out For

gold scams, silver scams, how to spot precious metals scamScam #1: Wiring – When (or if) to send money to a dealer you don’t know

The industry standard is to send payment to a dealer for your metals before they ship to you. But even though this is standard procedure, it does open you up to some risk. What if the dealer doesn’t fulfill his end of the deal? When selecting a dealer to work with, the best way to avoid this scam is to use a dealer you’ve been referred to by a trusted friend or advisor who has done significant business with the dealer and had a consistently great experience. Once you wire your money, there’s no way to stop it or get it back. If you’re working with a dealer for the first time that’s kind of a mystery, I highly recommend starting with a small order and testing the dealer.

Scam #2: Confiscation – Could my gold and silver get confiscated?

Confiscation is not only unlikely; there is not a single record of it ever happening. Dealers claim FDR confiscated all of the gold in America in the 1930s. The truth is, he didn’t confiscate any gold at all when he issued his executive order in 1933. He issued an executive order to nationalize gold and made it illegal for Americans to own more than five ounces of gold personally. The gold was bought and paid for by the federal government at fair market value.

In 1933 gold was used as money and the dollar was tied to gold. Since the government wanted to make more money without making more gold, they had to nationalize gold and put dollar bills into circulation for the gold it no longer backed. Gold is no longer used as money and we are not on the gold standard. Now, all the federal government has to do to spend more money is to sell treasury bonds to the Federal Reserve central bank, which in turn fires up the printing press and prints additional fiat dollars out of thin air.

Scam #3: Bait & Switch – Selling Confusion

A lot of dealers will advertise a coin for less than the spot value or “at dealer cost.” But when you get them on the phone, they try to sell you a collectible or a rare coin at a 30% to 100% markup instead. The coins they’re selling are extraordinarily hard to sell back for anywhere near what they’re selling them to you for. Just ask them, “How much will you buy these back from me for?” It’s always a fraction of what they’re asking. Numismatics are collectible and rare by their nature. Many unscrupulous dealers deal heavily in the numismatic world because values are not transparent. They’re able to build large margins into the price and make obscene profits while screwing the public.

The coins to look out for are the Kronas, the British Sovereigns, and other international fractional coins. These coins tend to be in really odd sizes, making them confusing and hard to compute in terms of value. An example of fractional coins could be: the coin is .4 ounces and 22 carat gold. How many ounces of gold is in that? Between the odd weight and the less than pure nature of the coin, most investors quickly get lost in the story and have no idea what the coin is even worth. This is a bad idea!

Scam #4: Boiler Room Dealers – High Pressure, Low Value

boiler room scam, precious metals scam, phone scamIn this scam you have a big room with a bunch of guys calling lists of people and hard selling them on a very rare, very exclusive deal that will be gone soon. The “brokers,” as they called themselves, used all sorts of fear tactics to lead their prospects into buying overpriced collectibles and specialty proofs.

They would often use bogus charts that focused on a specific rare coin that had done well for a narrow period of time and then use that one example as proof that the rare coin was a way better buy than the bullion coins. The true charts with long-term trends and actual large data samples showed the exact opposite result, but naturally those charts didn’t sell collectible coins very well so they were kept in the cabinets away from the target.

The type of boiler rooms that sell these high markup coins using scare tactics are neither honest, nor are they acting with integrity. Best to work with dealers you’ve been referred to by people you trust and who are financially savvy.

Scam #5: Pyramid Scams – The “Silver Snowball” Con

The Silver Snowball Scam goes like this: you (the target) buy a couple of silver Eagles each month and recruit others to buy a couple of Eagles as well. For every three people you enroll, you’ll get a free eagle. Sounds like a great deal – except the price you’re paying is 40% over the spot price. It only works for the people at the top of the pyramid. Here’s the math:

For this example, let’s assume the spot price on silver is $30.

You buy three Eagles for $42 each from Snowball, Inc.

You then recruit three people to do the same. They each buy three Eagles from Snowball, Inc., and you get a free Eagle.

Now you have four Eagles and paid a total of $126 – an average of $31. The actual fair market value is about $34 for an Eagle. So you’ve done well – you got the Eagles at a 10% discount on average.

But your recruits bought three Eagles for $42 each and didn’t sign anyone up. Their average price is $42 per coin – 30% more than they would have if they bought them from a reputable dealer. Part of that extra went to subsidize your Eagles, and the rest went to the company running the Silver Snowball Scam. If it sounds too good to be true, IT IS!

Scam #6: Leverage – The Interest Trap

interest scam, leverage scam, gold scamsThe Leverage scam goes like this: You see an ad in a newspaper or magazine saying, “Own $10,000 worth of gold for only $2,000.” You call the company, and they tell you they have a deal where you can buy $10,000 worth of gold with only $2,000 down and they’ll finance the rest.

The first problem with this scam is that you have fees and interest. If gold goes down just 5%, you would lose 25% of your money instantly and likely have the broker calling you to insist you send more cash over. The second problem is that you don’t get to hold the metals. You’ve effectively bought a contract (paper gold).

Scam #7: Cash-For-Gold Stores – Quick Cash at a Huge Price

The increase in the price of gold and silver over the last twelve years is evident in the explosion of new “cash for gold” stores all over the place. Why are they popping, up and how can so many of them be in business?

These stores buy scrap gold and silver in jewelry and coins. The scam is that they pay pennies and nickels on the dollar. I went into a couple of stores to verify this and was offered 50% of the value of my coins and about 20% of the value of my jewelry.