[Updated through 2020] Recently there has been a glut of advertisements promoting investment in precious metals. Internet websites, infomercials, radio ads, cold calls and TV ads – many promise quick riches through the investment of gold, silver and platinum. It’s no wonder that with gold and silver at record prices, fraudsters would be quick to try and capitalize on innocent investors hoping to cash in on the hot metals market.
What prompted this article? An ad I just saw that promised 300% returns in just 30 days and with “virtually no risk”! Is that possible? Theoretically yes, but not likely and with some of the fees charged by these scams, it truly is impossible.
In fact, as I write this update in February 2020, I just received a text message from a commodities firm that says with the outbreak of the coronavirus, the markets are poised to “collapse” and therefore I should purchase gold “today.”
Many of these frauds promise to arrange financing for the client’s purchase. They suggest that a client can purchase much more metal by utilizing the finance option and leveraging their investment. It sounds great until you read the fine print (assuming the fees are even disclosed anywhere in writing). Commissions, loan origination fees, interest , security and storage fees.
Storage fees? Yes. Typically these companies charge high fees to safeguard and insure your purchase in their vault. Unfortunately, in many cases these promoters never even take physical delivery of the gold.
Want to have your investment shipped to you so that you can safekeep it? That’s impossible, at least that is what these same promoters will tell you. Frequently they claim that government regulations prohibit shipping or that shipping is cost prohibitive because of the security measures needed. That is just plain nonsense. Jewelers, gold buyers and coin dealers ship precious metals every day.
In most of these scams, the promoter promises high profits. Legally, commodities brokers should not make such guarantees. How can they? No one knows whether the market for metals will go up or down and by how much. If you are leveraged and the price goes down, you could easily lose everything. Some promoters rely on that to make more profits.
These same companies typically also minimize the risk involved in these transactions. If it is disclosed, it is often found in the tiny print.
If this isn’t bad enough, many of these companies never even take possession of the metal. The investor thinks there are gold bars sitting in a vault, a vault he is paying for. In reality, there is no gold in anyone’s vault.
While some of these companies are located in the US and subject to US laws, many are offshore operators that utilize a local US phone number and a website. Government regulators have little change of helping you recover your investment in such cases.
As with any investment, the cardinal rule applies – if it sounds too good to be true it probably is.
How to Spot Precious Metals Scams
According to the Commodities Futures Trading Commission (CFTC), there are several warning signs of precious metals scams:
- Promotions that lead you to believe you can profit from current news already known to the public.
“Since that mine disaster, you are certain to earn big returns on your deposit.”
- Promotions by people who call themselves “metals dealers” or “merchants”.
- Advertised on radio, television, or online.
- Contacts you asking for personal information such as your name, phone number, and email and home address.
- Calls received from a broker or salesman from the company to promote the precious metals purchase (and we will add SPAM text message promotions).
- And one more, this one from our experience – Promotions that ask you to move retirement savings into volatile metals investments.
Mahany Law is a national boutique law firm concentrating in fraud recovery. Our stockbroker fraud lawyers can help victims anywhere in the U.S. Our goal is to get back every penny lost through these scams and unscrupulous operators. If you were the victim of a precious metals scam, visit our investor fraud information page. Ready to see if you have a case? Contact Brian Mahany online, by email or by phone 202-800-9791.