Guide for Commodities Investing [Avoid the Scammers]

Dear Rich Lifer,

According to federal and state regulators, two Los Angeles men allegedly cheated at least 1,600 people — mostly older investors — out of $185 million by selling them gold and silver at wildly inflated prices.

The story broke in September by the Wall Street Journal, who said, “the Commodity Futures Trading Commission, along with authorities in 30 states, accused Lucas Asher and Simon Batashvili of defrauding at least 1600 investors since 2017.”

According to the article, and Barrick Capital Inc. were two of the companies tied to these fraudsters. The WSJ says, “The defendants made sales pitches through telephone calls and social media posts, telling investors the government could seize their assets unless they converted them into precious metals.”

Victims were coerced to sell securities in retirement accounts and use the proceeds to buy gold or silver at markups ranging from 100% to 300%, the lawsuit alleges.

“Buying at those prices resulted in immediate losses for the investors,” said Joseph Borg, director of the Alabama Securities Commission.

As the price of gold continues to rise amid coronavirus concerns, so will a surge in unscrupulous characters. You may be wondering how you can protect yourself from these scam artists?

From ads claiming gold prices below market value to bait-and-switch tactics, fraudsters will do and say anything to separate you from your money.

As with any investment, the first rule to follow is always: If it seems too good to be true, it probably is.

Run away from any dealers promising you astronomical gains or offering you once-in-a-lifetime deals. And when you’re doing your research, always keep in mind the following:

  • Never rush into a purchase
  • Do a background check on the dealer you’re considering buying from
  • Dealers promising to buy back your coins or guarantee the price appreciation are lying
  • Always seek third-party appraisal
  • Don’t trust the Salomon Brother’s Index (more on this below)

The best way to ensure you’re not getting ripped off is to buy from established and reputable precious metals dealers.

And if you’re interested in gold investing, the best way to learn a new asset class is to get some skin in the game. And it couldn’t be any safer than this…

In addition to these tips, here are five gold scams you should watch out for:

Scam 1: The Bait-and-Switch

A common ploy is for fraudsters to lie about the condition of a gold coin. MS-70 is a “mint state” coin that has never been handled.

Con artists will try to sell you a mint condition coin and then swap it for a lesser grade coin hoping you won’t notice. For instance, a 2002-P $25 half oz. Gold Eagle is worth $857 at a grade of MS-65 — really good condition, but not perfect.

MS-70 for the same coin is worth $1,650. Inexperienced coin buyers might not be able to tell the difference, so they end up overpaying hundreds of dollars.

If you’re buying gold coins always check the grade of coins with a third party before buying. Reputable dealers will have no issue with third-party appraisal. And if they do, that’s a sign you should shop elsewhere.

Scam 2: Lipstick on a Pig

Another scam you’ll run into with gold coins is grading certificates and fancy plastic casings. Fraudsters will try to trick you with inferior grade coins by hiding them behind layers of plastic or sticking them to some kind of ornamental holder.

They might even go as far as selling you gold-copper alloy if they think they can get away with it. The fix here is to steer clear of collectors’ items and gold coins in fancy packages. Serious collectors and investors generally don’t care whether their gold coins are displayed in nice cases or not.

Scam 3: The Salomon Brothers Index

If the reason you’re buying gold is to make a decent return or hedge against inflation, beware of this next scam. Unscrupulous dealers like to reference the Salomon Brothers Index to make it seem like you’ll get rich quick if you buy now.

The annual index was compiled by the New York investment bank Salomon Brothers, and often showed appreciation of 12% to 25% a year. The truth is the Salomon Brothers index was based on a list of 20 very rare coins.

The Gold Eagles you find at your local coin shop are more common than you know, and don’t appreciate at nearly the same rate. So be realistic in your expectations for returns. Don’t let scammers pressure you into buying under the guise that what you’re buying is going to be worth a lot more in the future.

Scam 4: The Empty Safe

While it might seem inconvenient to store your own gold, or downright foolish if there’s a chance someone robs you, the alternative is you place your gold in the trust of someone else.

Shady dealers will prey off this fear by offering to store your gold in escrow for a small fee. The problem is these dealers don’t actually have any gold to sell you. They’re essentially charging you a storage fee for an empty safe.

Unless you find a dealer that can store your gold whom you absolutely trust, you’ll have to take the necessary steps to be able to store your own gold. Like any investment, gold carries its share of risk. Storage and theft is part of that risk you need to be willing to take on.

Scam 5: Swiss Procedure

Have you received an email asking for help to arrange a huge gold deal?

It’s surprising how often this scam works, but it must, since this scam is still prevalent today.

The first question to ask is why would anyone need my help? If someone is mining gold in Africa or south-east Asia, why would they be contacting you.

Ignore any email that talks about “Swiss procedure,” or “release payments,” or “5,000 metric tonnes.” It’s all fake news.

Done right, investing in gold can be safe, lucrative, and fun. Just be overly cautious if someone is trying to sell you something that seems too good to be true.

To a richer life,
The Rich Life Roadmap Team

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