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Precious Metals Fraud: Scams Increase With Precious Metals Prices



05 Aug 2020

The recent meteoric rise in gold prices supports the idea that gold is the best way to invest in uncertain times. Currently the price of gold is the highest it's been since 2011, when the top price reached was $1,900.00. Experts claim the trend will continue in 2020, although they can’t agree on any projections. In early 2020, Bank of America predicted that gold could rise to $3,000/oz. by the end of the year, while more conservative estimates predict an increase of 5% over the current market.

Silver is also at a high. As of mid-2020, the price of silver had reached $24.54 per ounce, the highest price since 2013, when it hit a high of $27.27.

With the current global pandemic and the economic and political impact it is having, it is no wonder that many people are looking at alternative ways to invest their money. However, with an increase in precious metals prices there is also an increase in fraud related to precious metals. This article explores the many types of scams related to gold and silver investing.

What Is Precious Metals Fraud?

Chances are that you’ll be buying gold from a seller, unless you’re thinking of going out and finding gold (which can be a fun hobby). Precious metals fraud involves selling fake gold or silver to unsuspecting targets. The “precious metals” come in various forms, including jewelry, gold bars, investments, and futures. Buyers believe the precious metal – or promise of monetary gain – is real and end up losing money. Like most scams, the chance of recovering lost funds is almost nil.

The increase in precious metals fraud directly correlates to precious metals prices. As the price increases, so does the number of gold-related scams. Scammers use various tactics to dupe buyers and investors from jewelry fraud to selling investments. Additionally, fraudsters continue to beat the odds by producing high-quality fakes and seemingly reputable businesses.

Precious Metals Fraud Variations

Con artists develop new scams every day with the hope of defrauding unsuspecting victims. Variations on precious metals scams aim to trick otherwise savvy buyers with counterfeit goods and empty promises of wealth and a secure future. With millions of people out of work due to COVID-19 and the economy in a recession, scammers increase their efforts, playing upon the fear of the unknown.

Precious Metals Phone Scams

Thieves rely on phone scams more than any other method of contact to reach their victims and their reason for calling ranges from actual monetary theft to identity theft. Sadly, once someone falls victim to a phone scam their information is often sold to other scammers making them bigger targets for other types of fraud.

Phone scams top the list for precious metals fraud as fake gold traders call and convince their targets to invest in something stable and guaranteed to increase in value. Gold scams cost consumers millions of dollars each year. Investment fraud is the most popular form of phone scam for precious metals. Buyers don’t need to see a product to buy, they only need to hear the recent history of gold prices and be convinced that the caller has access to stocks or other commodities. The scammer may also top off the fraud with more lies, telling the buyer stories about increased gold mining production.

The amounts stolen from victims vary widely depending on the type of phone scam. The Better Business Bureau’s Scam Tracker reports that in 2020 losses to precious metals phone scams have ranged from $50 to $300,000.    

“Buy Now - Pay Later” or Hidden Loan Agreement Scam

The “buy now - pay later” scheme or hidden loan agreement scam nets the most significant profit for scam artists. The promise of receiving a big payout tempts would-be buyers to shell out a portion of an investment to secure gold or to purchase stocks and futures. The buyer eventually learns that the deal is fake, and the money spent on the sale is long gone.

Here’s how the scam works:

A caller offers a once in a lifetime opportunity to purchase gold, shares in a gold mining operation, stocks, or futures for a fraction of what they’re worth. The buyer pays a small percentage of the value upfront, usually 15-25%, with the agreement that you pay the rest in installments to the company. Additionally, the company will often offer to hold onto the gold for safekeeping for a small fee that will be billed along with the monthly payments. Of course, typically in the hidden loan agreement scam the gold or mining company doesn’t exist, and the investor loses his initial investment and any money paid after. There is no way for the investor to cash out and all money is lost.

Warning signs for hidden loan agreement scams:

  • Receiving an unsolicited phone call regarding low risk/high return investments. 
  • Requests for immediate payment, especially wired cash.
  • The company is vague about associated fees and the name of the bank/vendor.
  • The company is overseas.
  • The company states that precious metals transactions aren’t subject to regulations by the Commodity Futures Trading Commission or the National Futures Association.
  • The deal doesn’t identify the physical location of the gold.
  • The company claims it will deliver the physical precious metal to an overseas storage facility.
  • There is difficulty in verifying the company’s license and information.

Empty Vault Scam

As briefly mentioned above the empty vault scam works exceptionally well when paired with the hidden loan agreement. The precious metals seller promises to store the customer’s gold, jewelry, or coins in a “safe” storage facility for a fee – only the storage facility doesn’t exist.

Rare Coin Fraud

Rare coins don’t always come from dealers. In times of economic insecurity, coins and jewelry will often pop up in online ads and social media. Scammers will also use cold calling to sell “rare” coins to unsuspecting victims. 

If you’re thinking about investing in gold coins do your research on the value of the coin you’re thinking of buying. Sellers offering coins at a very low market price are almost always scammers.

Fake Gold Jewelry or Gas Scam

This fraud is similar to the rare coin scam in that fraudsters try to sell fake items at cheap prices. In the case of this scam the con artist approaches a potential victim at a gas station or supermarket parking lot, telling a sad story about desperately needing gas or food. 

The scammer offers trading a valuable piece of gold jewelry for some cash. The victim sympathizes with the scammer and feels terrible for the unfortunate situation, they agree to the deal. The crux of fake gold jewelry scams is that the jewelry is worthless and the thief moves onto their next victim.

How to Protect Yourself From Precious Metals Fraud

The best way to avoid a scam is to refuse to buy upfront and then do your research. Don’t answer calls from unknown numbers or express interest in buying gold or other items from unverified individuals. Work only with reputable companies with a reputable business history.

Other tips for avoiding precious metals fraud include:

If you receive an unsolicited phone call from someone offering a gold investment opportunity you can also research the phone number by running a reverse phone lookup on the CallerSmart website or iPhone caller ID app.

What to Do if You’ve Been Scammed

It’s crucial to report the scam to the appropriate authorities. If you’ve been targeted by a precious metals scam or have fallen victim to one there are things that you can do.

First, you can file a complaint against the fraudulent company by using the FTC’s Complaint Assistant. Next, because this scam is related to precious metals you should contact the National Futures Association to file a complaint. You can also contact your state’s Consumer Protection Agency.

When reporting a scam be sure to include as much information as possible about the situation.

Should You Invest in Gold or Silver?

Choosing to invest your money should be tempered with knowledge and caution. No one can guarantee a positive outcome on investments since the market fluctuates daily. Forecasters advise on the potential outlook of investments, but in the end, the choice is yours.

Overall, experts support investing in gold and other precious metals based on the history of the market. Historically, paper currencies do not compare favorably to gold. As with any investment, the key to making money is to buy low and sell high. New investors should start small and follow the investment to ensure growth before investing large sums of money.

What Causes Gold Prices to Rise and Fall? 

Like most commodities, gold prices fluctuate based on supply and demand. Add to that the fact that gold retains value despite what’s happening in the global market. Most of the demand comes from government vaults, central banks, and investment demands. Gold mining production also drives gold production, and thus the price of gold. Gold mining operations haven’t increased since 2016, this is due to the fact most of the “easy gold” reserves have been exhausted and mining gold has become more expensive and difficult.

Another source of demand relates to jewelry and industrial markets. Gold remains highly sought after for jewelry production. In recent years, industrial markets have begun to use gold in various products, including cell phones. The higher the demand, the higher the cost of gold.

Safe Ways to Invest in Precious Metals

The safest way to invest, particularly if you’re a new investor, is to use a reputable company. Check the company’s credentials, licenses, and track record. Research the company at various consumer and regulatory agencies, like the Better Business Bureau and FINRA, for reviews and potential complaints. If you’re satisfied with your findings, invest a small amount to gauge the company’s service and outcome.

Gold attracts buyers from every walk of life and economic status. The concept of owning gold gives a person a sense of security and wealth that can outlive multiple generations. The current uncertainty of the global market has only increased the desire to own gold, regardless of its form. If investing in gold or other precious metals seems attractive to you, do so with intelligence and care so that you won’t become a victim of precious metals fraud.

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