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Precious Metals Investing - A High Stake Game of Unregulated Greed

If you have aging parents, you must read this!

TV representing advertising
Precious metals dealers have capitalized on this, targeting senior citizens with late-night or early-morning television infomercials and social media marketing.

Now, you and I both know that any investment comes with risk - and every investment opportunity warrants due diligence. Alternative investments can be both lucrative and powerful - but, without doing your research, it’s easy to fall victim to fraudsters and scams.

Commodities are the essential goods that make up everyday life. They can include metals such as copper, gold, and silver; energy sources such as crude oil and natural gas; agricultural commodities such as wheat and coffee; and livestock and meat products such as pork and cattle. Investing in commodities as an asset class, like equities or fixed income, can diversify an investment portfolio.

As an alternative investment veteran, I’ve crossed paths with many precious metals dealers. Over the past few years, I’ve heard some heartbreaking stories from clients and their loved ones. Some alarming trends have emerged in the precious metals market.

While not all precious metals dealers are bad, the market is rife with unregulated brokers fueled by greed and fast money. These bad actors are actively working to incite fear and manipulate consumers - all in the name of making a buck. The elderly are particularly vulnerable, and - even more disturbing - often specifically targeted.

Targeting Seniors With Bullshit Advertising.

I often hear people in their “golden years” say they have trouble sleeping at night. It’s a well-known fact that older people have a harder time falling asleep and wake up more often at night. This is caused by aging brains disrupting the body’s circadian rhythm and causing changes in sleep patterns as we approach our retirement years. Precious metals dealers have capitalized on this, targeting senior citizens with late-night or early-morning television infomercials and social media marketing.

The ads appear during late night and early morning hours when older people are most likely to be alone and unlikely to bother their friends, family members, or advisors with a phone call. This is no coincidence - the messages are designed to reach an aging population during a time of isolation, capitalize on their fears of losing their retirement, and manipulate them into purchases with the promise of easy money.

The ads take an armageddon-is-coming approach, preying on common concerns: fear of government encroachment and mishandling, inflation, taxes, market crashes… the usual suspects. Then they suggest the need to protect your retirement. The ads strategically exploit these pain points, implying to viewers that a variety of impending disasters will cause the dollar's value to fall, the value of precious metals will rise, and the only way to survive will be to hold… that’s right, precious metals!

Then they throw in some disadvantages in order to appear balanced: Prices of precious metals can be volatile, leading to losses if you sell at the wrong time… storage costs... It may not be easy to sell precious metals at a fair price if the market is unfavorable. But, rarely do these messages explain costs, fees, or even give details about what the buyer is actually purchasing.

Then the icing on the cake? They close the loop with something like, “Take advantage of all these offers with thousands of dollars in free silver if you call now, free IRA and storage fees paid for multiple years, and free shipping to anywhere in the United States!”

Yes, the aging population is requesting more information at a staggering pace without considering the risk. Hook, line, and sinker!

Senior woman's hands folded on lap
Precious metals dealers have capitalized on this, targeting senior citizens with late-night or early-morning television infomercials and social media marketing.

Prepare yourself for some appalling business practices.

1. Not disclosing the actual cost of the precious metals. Precious metals dealers aren’t regulated, so no guidelines exist on markups or fees. This means brokers have free rein to charge exorbitant rates and gouge customers without reprisal.

Dealers often quote prospective buyers a total purchase price per ounce, but don’t share how much of the total they will retain as their commission. These markups can be HUGE - 40% or more of the actual metal cost - with the investor unaware that a commission has been added. Frequently, buyers don’t discover the discrepancy until they attempt to sell the metals and realize the current value is lower than the initial purchase price.

Investing in gold and other precious metals comes with risk, including loss. While gold may be considered a "haven" investment, gold and other metals are not impervious to price declines. Recovering from an initial 40% loss is tough, even in the best market conditions.

The most egregious offender I’ve seen was charging 140% over spot price. Buyers were charged $2,400 for $1,000 in metals without disclosure. How do these people sleep at night?!

2. Not fully explaining what they are selling. I’ve seen brokers selling “special” coins at inflated rates, despite the items having no resale market. The broker sells “limited edition,” or “specially minted,” coins at a premium, claiming they hold value for their uniqueness in honoring a person, place, or event. The purchase price of the coins is significantly higher than the value of the metal content, but they neglect to tell the buyer that there is no resale demand. When the buyers attempt to resell, the value of the coins is limited to the metal content and they have to take a loss.

3. Using sales pressure to discourage buyers from evaluating offers. “Act now, before they’re gone!” Sadly, these bullshit sales tactics work - buyers rush into commitments and the dealers grab their money with no reprisal.

Bogus reviews bought with freebies.

Google "buy precious metals," and you’ll get pages of search results with the overarching message that every precious metal dealer is the number one dealer. Consumers look at reviews to establish trust and credibility - if a company is number one and has hundreds of five-star reviews, they must be good to their customers, right?

Incentivized reviews can create a good first impression, mask underlying issues, and imply the dealer is operating on the up-and-up. The dealers know this and strategically use incentives to solicit positive reviews. Immediately after a purchase, customers are asked to leave a positive review in exchange for a freebie like free shipping, free storage, or even a silver coin. The goal is to get’ em early (before they get burned), portray a stellar reputation, and deter prospective customers from asking questions and finding out they collect a 40% commission on precious metals purchases.

This works. Telling customers they can receive a free silver coin goes a long way and the positive reviews pile in. Remember this when you see their star ratings!

Drowned by the marketing frenzy.

While watchdog groups and federal protection agencies are dedicated to protecting consumers, their budgets and resources are small compared to the dealers who are raking in huge profits. Legitimate dealers who operate in good faith are out there, but are much harder to find. The ones who advocate for their clients and do business with integrity are often drowned out in the marketing frenzy. Couple this with the fact that selling precious metals is an unregulated industry and you have an environment that is ripe for scams.

Financial fraudsters tend to go after college-educated, optimistic, and self-reliant people. They also target those with higher incomes and financial knowledge who have had a recent health or economic change. As legendary bank robber Willie Sutton said, fraudsters tend to go "where the money is.”

Older Americans, nearing retirement, who have worked and built wealth over a lifetime are a particularly lucrative target. If you haven’t been a victim of a fraudulent pitch, you probably know someone who has.

If you believe you have been defrauded or mistreated by a professional or firm, file a complaint. Likewise, if you suspect someone you know has been taken in by a scam, send a tip.

Precious Metals “Pro Tips”

These tips can help you distinguish the dealers that may be offering a viable investment opportunity from those who are purely interested in filling their own pockets.

1. Say "no" to pushy salespeople.

Investing in physical precious metals comes with the risk of encountering high-pressure sales tactics and even fraud. Remember: reputable investment professionals shouldn’t push you into “acting now” or making an immediate investment decision. Even if no fraud occurs, this type of pressure is inappropriate.

Be particularly wary of unsolicited telephone calls, persuasion tactics dangling the prospect of large profits, or implying that there are limited quantities of an investment available.

Many of the victims I’ve talked to didn’t want to “be mean” and say no to a pushy salesperson. If you are unsure or uncomfortable with an offer or transaction, it’s not mean to say no. Take whatever time you need to look into the investment, the company, and the fees.

2. Research the company.

Check out the company’s background and research itstheir leadership before you invest. Unfortunately, there is no centralized, regulator-approved list of precious metal dealers, but just like other businesses, you can find dealers accredited by the Better Business Bureau. The U.S. Mint also maintains a searchable database of dealers, and the Commodities Futures Trading Commission (CFTC) website allows you to search the firm or owner’s name for disciplinary actions.

3. Be on high alert when you hear "low risk."

Don’t fall for a pitch that physical metals are a “safe” or “low risk” investment. Physical precious metals investments are susceptible to risks like storage charges, price fluctuations, and the use of investor loans to finance the purchase of metal bars, bullion, or coins. If you’re thinking about buying metals, ask the salesperson for a risk disclosure statement. If the salesperson says no, end the conversation and find another precious metal dealer.

4. Get a full accounting of costs, fees, and current value.

The “spot price” of the metal is the current market value. Knowing the spot price will help you make educated decisions when presented with the broker’s fees and commission structure. Don’t make any investment without understanding exactly where your money is going.

From account opening fees to exorbitant sales commissions, and high fees for shipping, storage and other recurring expenses, ensure you understand your all-in costs and the level of return you need to earn to break even.


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