With major Western nations now defaulting on their debts, more and more investors [are] taking my advice [that they should] hold at least 5-10% of their portfolios in physical precious metals and, [as such,] 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 [so] 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. Words: 1000
So says Peter Schiff (www.europacmetals.com) in edited excerpts from his article*.
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Schiff goes on to outline a number of common scams and pitfalls and what to look for and avoid:
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.
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. [Therein lies the bait and switch approach.]
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. [Here are two articles on American and Canadian gold and silver coins available:
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 U.S. 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…
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.[Take a look at the following articles along these lines:
Moreover], 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 would not 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. [The moral of this story – don’t be conned – because now you know better.]
Proof Sets and Commemorative Sets
Be wary of anything using the term “collectible,” “proof,” or “commemorative,” as they often indicate a severe rip-off.
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[more], 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. [For an excellent and revealing article on the diference between a regular everyday ounce of measurement and the troy measurement of gold read this article entitled What Do Gold Measurements “Troy” Ounce and “Karat” Really Mean?] After all, you need not care if the change in your pocket has a bright, shiny finish 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…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 [but] 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.
If you’re interested in physical gold, I recommend you buy small gold bars which are available in a wide range of weights and can be bought for as little as 1 percent over the price of gold. [That being said, this article outlines five rules to follow before, during and after the purchase process.] Words: 813
The laws of gold confiscation are very clear in the U.S.: During any time of national crisis, it becomes illegal to buy, sell, or “hoard” gold bullion in any form. It is delineated under an Executive Order and can be re-administered as quickly as the assets in your checking account can be frozen. The penalties for violation are 10 years in prison, $10,000 fine, or both. Words: 821
Imagine living in a country where the government suddenly decides to make it illegal to hold a certain type of asset, and goes on a systematic process to relieve its citizens of such an asset? Such actions happen in wartime and by politically-corrupt regimes but how about private-asset seizure in the good old U.S.A.? Well, […]
The United States has seen four different gold confiscations — the last of which was in 1933. Few people realize that when the freedom to own gold was restored in 1972, the President retained the power to require us to surrender our gold which he can do again any time (probably on a Friday) with the mere stroke of a pen. That means all confiscated gold could possibly be compensated at only $42.22 per 1oz. and not at the world market price. Don’t take this decision lightly. It was another blatant warning that the government may be contemplating grand larceny — AGAIN. Words: 1740
Will the laws and rules in place to protect individuals in their attempt to set something aside for retirement be safeguarded by the representatives elected to advocate for them in Washington? Will the principles and moral integrity of the political class keep them from appropriating the trillions of dollars held in 401k’s and IRA’s? I’m not so sure! Words: 1207
Silver has more than doubled [in price] from its 2008 multi-year high…primarily due to demand among the industries of the developing world…and among those industries where silver is virtually irreplaceable… If silver goes too high, however, it could provoke government interference in the name of ensuring national security. Let me explain. Words: 606
At first glance, buying gold may seem a simple, straight forward process. However, there are dangers, such as falling for a telemarketer’s line that his coins are “non-confiscatable” and somehow have more value because you bought them from him. Basic bullion is the way to go when investing in gold. Words: 788
I think we all would agree that owning a 10 kg bar of gold would be nice but that it is probably out of the question at the current cost of over $500,000! I had the pleasure of caressing such a bar recently and being surprised at just how heavy (22.045855 lbs.) it was for such a small object. Below I describe the gold coins of Canada and the United States. Words: 870
The United States Mint has taken the demand for more mass production silver bullion coins seriously of late with the expansion of their offering to a planned total of 57 new coins by 2021 with the introduction of their America the Beautiful Bullion Coin Series . Canada’s Royal Canadian Mint has followed suit expanding its offering of mass production silver bullion coins to 8 by 2013 with the launch of their Canadian Wildlife Silver Bullion Coin Series Program. Below are the details. Words: 958
Some physical gold, silver, platinum and palladium bullion assets, in addition to traditional paper assets, can be part of your Individual Retirement Account (IRA) or Roth account and they can be bought and sold with no tax consequence until you move money out of the account. [This short articles reveals just what bullion assets can, and cannot, be included.] Words: 573
You have no doubt read countless articles on the price of gold costing x dollars per “troy ounce” or perhaps just x dollars per “ounce” but the difference between the two measurements is significant. For that matter, what’s the difference between a 24 karat gold ring and an 18 karat gold ring? Let me explain. Words: 863
Whether it’s pirated software, poison-infused baby formula, cancer-causing drywall, luxury purses, or fake medicines, if you need a knock-off, China has traditionally been the go-to country, with a counterfeiter always willing to oblige. Now, with precious metals prices on the cusp of possibly the biggest price explosion in centuries, fake gold and silver products are becoming a booming industry. Here are some safeguards to protect yourself from getting duped. Words: 1124
For a long time the buying and selling of gold has been outside the reach of the average citizen. The predominate banknote and the dominant currencies previously managed to position themselves very well in respect of the precious metal during stable periods. However, it is during difficult times [such as these when] quantitative easing and currency wars have highlighted the volatility and vulnerability of currencies…that the true, safe value of gold really stands out…Fortunately, it is now easier for you to convert your savings into gold… [than ever before and this article outlines the reason for buying physical gold and the advantages and disadvantages of buying gold bars, ingots and/or coins. Read on!] Words: 853