How Not to Buy Gold and Silver: Pitfalls to Avoid
A fool and his money are soon parted
There are so many pitfalls when it comes to buying gold that the 16th century proverb might have been designed for todays gold buyers. While there are many legitimate sellers, there are also scam artists and unscrupulous dealers.
I hope we will always have the freedom to make stupid decisions, to make fools of ourselves, and to be parted from our money. But that freedom puts a burden on the potential buyer to examine a proposed transaction thoroughly before buying. Recent high gold prices have attracted nefarious characters who try to convince unsophisticated investors to buy precious metals at outrageous premiums or to sell them less they bargained for.
A few simple rules will help keep you out of trouble
Buying gold and silver can preserve purchasing power in the face of inflation and devaluation. There are many good ways to buy gold and other precious metals, but not all ways to buy them are appropriate for every investor.
There are so many pitfalls when it comes to buying gold that the 16th century proverb might have been designed for todays gold buyers. While there are many legitimate sellers, there are also scam artists and unscrupulous dealers.
I hope we will always have the freedom to make stupid decisions, to make fools of ourselves, and to be parted from our money. But that freedom puts a burden on the potential buyer to examine a proposed transaction thoroughly before buying. Recent high gold prices have attracted nefarious characters who try to convince unsophisticated investors to buy precious metals at outrageous premiums or to sell them less they bargained for.
A few simple rules will help keep you out of trouble
- Know whom you are dealing with. The guy who calls you unsolicited on the phone, pitches you on cable tv, or has just set up a website to sell you a rare coin (real or fake), may have been selling used cars yesterday. Why would you take his advice?
- Some gold coin dealers you find on the web have salesmen whose commission is based on the premium over the gold price. They will steer you away from inexpensive bullion coins to so-called pre-1933 rare coins like US Double Eagles. They will tell you that these coins are not subject to confiscation. Since the government can do about anything it wants to these days, there is clearly no truth to this.
- Dealers sometimes offer the convenience of holding the gold you buy from them in their so-called secure vault, which really means they owe you the gold. Though the dealer may be legitimate, you are its general creditor. You should avoid this arrangement. You could even find yourself to be a general creditor of a scam artist who has sold you non-existent gold and happily stores it for you in a non-existent secure vault.
- Selling participations in gold mining ventures is also a popular scam. It takes years to put a new mine into operation, and that presupposes that the company has actually made an economic discovery. Use common sense.
- Do not get caught up in a bidding frenzy on eBay. In fact, there is very little to recommend buying a pig in a poke, no matter how enticing the description may sound. Because there are more- and less-respected grading services, even a graded numismatic coin may actually be an overgraded coin, presented online with a misleading link to a top-tier grading service showing a much higher value for a coin of that grade. The worst part is that you will not know you overpaid till you go to sell.
- Do not buy rare coins if you are not a knowledgeable coin collector or not willing to become one. No matter why you want to buy precious metals, buying rare coins is not an efficient way to invest in gold or silver.
Buying gold and silver can preserve purchasing power in the face of inflation and devaluation. There are many good ways to buy gold and other precious metals, but not all ways to buy them are appropriate for every investor.
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