Gold scams happen because people target honest investors like you with fake gold, phony mines, Ponzi schemes, and more.
Did you know Americans lost $4.6 billion to investment fraud in 2023, a 14% increase from the previous year?
Investing in gold is a wise way to protect your wealth, especially in uncertain economic times. Lately, however, the gold market has become a minefield of scams and traps, with fraudsters preying on the trust of honest investors.
Smart gold investment isn’t just about finding a good deal anymore; it’s also about making sure you don’t get swindled. Learn how to spot a gold scam and protect your hard-earned investment from being snatched away.
What are gold scams, and why are they on the rise?
Gold scams deceive people into buying fake, overpriced, or non-existent gold. Scammers exploit people’s trust in gold as a safe investment, especially during economic uncertainty. They use flashy ads, phony documents, and promises that are too good to be true to manipulate victims into handing over their money.
Recently, these scams have increased as more people view gold as a solid way to protect their money from inflation. The internet and social media have also made it easier for scammers to reach a wider audience than ever before.
Who do gold scams mostly target?
While anyone can fall victim to a gold scam, certain groups are often more vulnerable.
Older adults: Scammers frequently target senior citizens because they may have significant savings and be less familiar with the gold market. They use aggressive tactics and promise high returns.
Low-income individuals: Because of financial vulnerability and the hope for quick or massive profits, fraudsters exploit this group by offering unrealistic promises of riches.
Immigrants: Immigrants might be unfamiliar with the gold market and more susceptible to financial exploitation. Swindlers may use culturally tailored approaches to gain trust and push them into hasty decisions.
While these are the most targeted people, anyone can become the target of gold fraud, so knowing what to look for is important.
Common gold scams and how to spot them
Let’s examine some common gold scams and the red flags to watch out for to avoid falling into similar traps.
1) Counterfeit gold
Counterfeit gold scams involve selling imitation physical gold items that closely resemble genuine products. Scammers may use sophisticated techniques to replicate the weight, appearance, and even serial numbers of real gold bars and coins, making them difficult to detect.
Red flags
Too-good-to-be-true prices: Investment opportunities that seem much cheaper than market value.
Lack of authenticity certificates: Sellers cannot provide verifiable certificates of authenticity.
Example
In 2021, the FBI and Treasury Department warned about online auctions selling fake coins and bullion. The advertisements for that auction were real, but the coins sent were bogus.
2) Ponzi schemes
Ponzi schemes in the gold market promise high returns to new investors. The way it works is that money from new investors pays dividends to earlier investors, creating the illusion of profitability. These schemes eventually collapse when they can no longer attract new investments.
Red flags
Guaranteed returns: Any promise of high returns with little or no risk.
Pressure to recruit others: Often, these schemes pressure investors to bring in new participants.
Example
Goldfinger Coin & Bullion operated an online platform that appeared to let customers invest in precious metals but was actually running an unlicensed money-transmitting service that facilitated illegal Ponzi schemes and other fraudulent activities. The FBI and IRS shut down the company in 2008 and returned more than $12 million to victims.
3) Self-directed IRA scams
These fraudulent schemes target those looking to invest retirement funds in gold or other precious metals through self-directed IRAs. Scammers pose as legitimate companies offering to facilitate gold purchases for IRAs but then charge excessive fees or lie about the gold’s real value.
Red flags
High-pressure sales tactics: Pushing customers towards high-commission items like collectible coins over bullion.
Misleading information: Providing biased claims about certain products’ resale value and stability.
Custodians
Self-directed IRAs require third-party custodians to manage your account. Choose custodians who have confirmed customer reviews, have been in business for several years, are upfront about their fees, and clearly explain the rules.
4) Stock scams
Stock scams in the gold market often involve fake mining operations or pump-and-dump schemes. Scammers promote non-existent gold mines or exaggerate the value of mining stocks to inflate prices, then sell their shares at a profit, causing the stock to crash and leaving other investors with losses.
Red flags
Unverifiable claims: Claims of discovering massive gold deposits without third-party verification.
Rapidly rising stock prices: Sudden spikes in stock prices based on hype rather than actual performance.
Example
The Bre-X Minerals Ltd. scandal involved false claims of a massive gold discovery in Indonesia, which skyrocketed stock prices until investigators exposed the fraud.
It’s important to note that these red flags are not specific to each type of scam but can appear in any fraud.
A Redditor on r/Scams summed up gold fraud succinctly:
“That’s how these scams work. Start by building a rapport, then make a relatively small request. Start adding plausible-sounding reasons to ask for a little more, and then a little more. It’s like the allegory about boiling the frog. Each individual step seems small, but before you know it you’ve been bled dry.”
5) Impersonation scam
A newer trend in gold fraud involves criminals convincing victims to liquidate their savings into gold bars, claiming the funds need to be safeguarded. The scam begins with a phone call or email from someone posing as a government official or representative from a trusted company. The scammer tells the victim that their accounts have been compromised, and to protect their assets, they must convert them into gold, which is then collected by a “courier” for safekeeping.
Red flags:
Unsolicited communication: Unexpected phone calls or emails urging immediate action.
Requests for gold payments: No legitimate organization will ask you to convert your savings into gold for protection.
Urgency and secrecy: Pressure to act quickly and not inform anyone else.
Example: A scammer posing as an FTC official claimed that hackers compromised a Seattle woman’s accounts, convincing her to convert nearly all her life savings into gold bars and hand them to a courier. Unfortunately, no one ever saw the gold again.
How to protect yourself from gold scams
A little knowledge goes a long way.
Choose a reputable company: Always buy and sell gold from a recognized national dealer or broker with at least a 10-year track record, like Swiss America.
Review their certifications: Verify that the dealer is in good standing with organizations such as the Better Business Bureau (BBB) and the American Numismatic Association (ANA). Check the company’s credentials and read customer reviews.
Look for a buy-back policy: Any dealer you work with should have a buy-back policy in writing, including the conditions for repurchasing coins and the timeframe for repayment.
Buy only certified coins and bars with inspection rights: Purchase PCGS or NGC-certified “sight-seen” coins, which allow for a fair inspection period after delivery. This helps make sure you can exchange a coin if you aren’t happy with its condition.
Demand full disclosure: Be wary of dealers who don’t provide clear information on the risks and rewards of investing in precious metals. Make sure you understand the short-term and long-term positioning and avoid over-investing in any one asset.
Verify delivery and pricing: Make sure the dealer can provide the gold or silver coins at the quoted prices. Watch out for offers or promises that seem noticeably lower than other dealers’ prices, as they might not actually have the coins available.
Build trust with your dealer: Before you purchase gold bullion, coins, or bars, ask plenty of questions, check references, and seek full transparency. Reliable dealers should provide facts, historical data, and portfolio-tracking tools to help you make decisions. Swiss America’s customers benefit from our online portal where you can view your portfolio and status in real time.
What do you do if you suspect a scam?
You’ve learned a lot about protecting yourself from a gold scam, but scammers are getting more sophisticated. If you think you are the victim of a scam, here’s what to do.
Document everything: Keep records of all communications and transactions through your financial institution, including emails, messages, voicemails, and any contracts or receipts. This paper trail provides the evidence to report the scam and get your money back.
Contact authorities: Report the suspected deception to a government official at the FBI’s Internet Crime Complaint Center (IC3), Department of Justice (DOJ), or the CFTC. Detailed reports can help government officials investigate and potentially recover lost assets. Older adults can also contact the DOJ Elder Justice Hotline through the Elder Justice Initiative website.
Alert your financial companies: If your bank accounts or retirement funds get affected, notify the financial companies immediately to freeze accounts, halt transactions, and prevent further unauthorized actions.
Seek professional advice: Consult a financial advisor or attorney experienced in fraud cases to explore your options for recovery and understand your rights.
Benefits of legitimate gold investing
Using your hard-earned money to buy gold from reputable dealers can help protect your wealth. Most investors decide to buy this precious metal because of:
Inflation hedge
People often see gold bullion or other precious metals as a way to give them a way to beat the effects of inflation. As the price of goods and services increases, the value of money declines. Gold isn’t directly tied to any specific country’s economy or monetary policy.
This independence creates an alternative to holding currency.
Portfolio diversification
Experts often recommend holding 5%-15% of an investment portfolio in precious metals. It’s a way to reduce your risks by holding assets that don’t move in the same direction as stocks, real estate or crypto.
Tangible asset
Gold, silver, and platinum are actual physical assets you can hold in your hand. You don’t need an internet connection or a secure password to access them. And you can control them completely. You don’t need a bank, company, or the government to fulfill an obligation for you to own them.
Your precious metals are also free from cyber risks from hackers or system issues. You can store your assets at home and access them anytime you want without having to worry about digital vulnerability.
This independence from other systems gives many investors peace of mind.
Don’t let gold investment scams scare you
Investing in gold can feel risky with so many scams out there, but it doesn’t have to be. Remember, you’re not navigating this alone — many experts are constantly working to protect investors like you and expose fraud.
Don’t let the fear of scams deter you from the potential benefits of gold. With the right knowledge and a cautious approach, you can still safely invest and grow your wealth. Stay informed, trust your instincts, and know that with a bit of vigilance, the gold market can be a rewarding place for your investments.
For more guidance on investing in gold, get in touch with a precious metals expert at Swiss America today
Gold scams: FAQs
How do you spot gold investing scams?
Gold investing scams often have unrealistic promises of high returns with little risk, pressure to make quick decisions, and a lack of transparency about the investment or the company.
How not to get scammed when buying gold?
To avoid being swindled, purchase gold bullion, coins, and bars from well-known dealers with excellent reputations. Verify the gold’s authenticity and avoid unsolicited offers or deals that seem too good.
How do I know if my gold dealer is legit?
Make sure your gold or precious metal dealer is registered with regulatory bodies like the BBB or CFTC. Check for positive customer reviews and industry affiliations, and verify their business credentials.
Note: The information in this post is for informational purposes only and should not be considered tax or legal advice. Please consult with your own tax professionals before making any decisions or taking action based on this information.
