Pitfalls to Avoid When Investing in Gold

by Jerry White

High gold prices have attracted nefarious characters who try to convince unsophisticated investors to buy precious metals at outrageous premiums or sell them less than they expected to get. To avoid becoming a victim of a scam, follow these rules and use your common sense to avoid gold-investing pitfalls.

A few simple rules will help keep you out of trouble:

  1. Know whom you are dealing with. Why would you take the advice of a 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)? He may have been selling used cars yesterday.
  2. Some sellers are on commission based on the premium over the gold price. They will try to steer you away from inexpensive bullion coins to so-called pre-1933 “rare coins“ like US Double Eagles. They may tell you that these coins are not subject to confiscation. Since the government can do anything it wants to these days, there is clearly no truth to this.
  3. Dealers may offer the convenience of holding the gold you buy from them in their “secure vault” — which means that they owe you the gold. You are their general creditor. 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”.
  4. Don’t get caught up in a bidding frenzy on eBay. There is little to recommend buying a pig in a poke. You won’t know you overpaid till you go to sell.
  5. Don’t buy rare coins unless you are a knowledgeable coin collector. Buying rare coins is not an efficient way to invest in gold or silver.

Buying precious metals offers opportunities for profit and safety not available with any other investment. There are many good ways to buy gold and other precious metals, but not all ways to buy them are appropriate for every investor.

Americans are buying precious metals, many for the first time. Some are concerned about the erosion of their purchasing power as the Treasury runs the dollar-printing presses and the Fed buys Treasury bonds. Some are concerned about a possible collapse of the US financial system in the face of sharply rising government debt.

Most investors have little or no experience in buying precious metals and many have questions and concerns. To help you avoid market pitfalls and decide which forms of gold are most appropriate to meet your investment goals, see our precious metals investor’s guide, How to Buy Gold and Silver Today.