gold has an extraordinary history and yet its industry lacks global regulation oversight – no wonder so many people end up being taken advantage of by unscrupulous dealers or investment firms.
Precious metals sellers use hardball sales pitches to instill fear among older, politically conservative investors about government actions that might compromise their retirement savings – without disclosing markups that might impact them directly.
Licensing and Registration
Many states have laws requiring retail precious metals dealers to register with them; these requirements may cover anything from selling precious metals themselves, as well as business practices and telemarketing techniques used by dealers.
Gold dealers must comply with federal law which mandates they report all transactions that result in physical delivery within 28 days, to prevent individuals from using non-corporately held precious metal sales as unreported income.
Recent cases have demonstrated how some dealers have engaged in bait-and-switch tactics. Dama Brown, staff attorney for consumer affairs at the Federal Trade Commission, says these dealers promise customers they’ll triple their money within 30 days by purchasing coins such as French 20-franc “Rooster.” However, such coins typically lack historical relevance or anything beyond melt (or scrap) value as far as adding weight is concerned.
Other dealers have targeted their marketing at older, politically conservative investors concerned about any actions by government that might compromise the safety of their retirement savings. To attract these customers, dealers often feature celebrity endorsements and client reviews as drawcards.
The LBMA requires its members to carry insurance policies designed to safeguard customers from theft or loss. Such coverage includes both the cost associated with returning precious metals as well as their value.
As economic worries increase and recession concerns arise, investors have turned their focus towards gold and silver as an insurance against an economic downturn. Some are turning to ETFs and mutual funds that invest in these assets while others opt for raw bullion such as bars or coins as investments.
Physical gold differs from stocks and bonds in that it’s considered more of a commodity rather than security, thus exempt from being subject to Securities and Exchange Commission oversight. There are laws in place which require dealers to report customer sales of certain precious metals above specific thresholds in order to prevent people from selling without notifying authorities; unfortunately, unscrupulous dealers often take advantage of this rule by exploiting investor fear in order to sell overpriced coins.
Marketing and Advertising
Gold business is experiencing unprecedented growth as both investors and consumers look for ways to diversify their portfolios. Dealers have upped their marketing efforts in an attempt to draw customers in, such as slick websites and high-pressure sales tactics that may violate state or federal consumer protection laws.
Price fluctuations of precious metals typically increase during times of economic stress or volatility, giving unscrupulous dealers an opportunity to prey upon fearful investors and make quick sales by charging premiums, fees and commissions that reduce profit in precious metal transactions.
Dama Brown, staff attorney with the Federal Trade Commission’s Atlanta office, reports on gold coin boiler rooms emerging. These businesses tend to make false or exaggerated claims regarding profitability of gold investments while employing high-pressure sales tactics in their sales processes.
Some dealers attract customers with historical or numismatic coins that they advertise at higher-than-melt value, but then sell these coins at prices far above their melt value. Such sales practices could violate CFTC regulations but can be difficult to police effectively.
Gold dealers must consider taxes as part of any market analysis. Purchasers of bars or coins from mints and private suppliers typically must pay sales and excise taxes; as a result, gold dealers usually adjust their Buy-From-Use and Sell-To-Use prices to account for these expenses.
Purchases of precious metals over specific quantities must be reported to the IRS using 1099B forms, and this applies to transactions among coin dealers, money service businesses, trusts and administrators of self-directed IRAs.
Even with these requirements in place, unregistered gold sellers remain. Both the SEC and CFTC filed fraud charges against Safeguard Metals of Santa Monica who promoted themselves as an ethical dealer by sponsoring conservative radio hosts like Sean Hannity and Mark Levin while using high-pressure sales tactics and hiding fees and markups from customers. Furthermore, according to FTC charges against other precious metal dealers making exaggerated promises about potential returns-such as “tripling your investment within 30 days.” To avoid being taken advantage of, choose an accredited member of Professional Numismatist Guild instead.