Top 3 Gold Coin Investment Rip Offs: Investing In The Right Type Of Gold By Using Best Ways As Long Term Investment
Tue, Sep 4, 2012
Gold Coin Investment Strategy
37 percent of investors say gold is the “best investment” to make right now.
That’s what a recent CNBC investor survey found. And as Gold Prices resume the uptrend, the interest in gold will only grow.
That’s great news for investors looking to jump on the long term gold bull market. It’s going to be a great and enormously profitable ride for anyone looking to invest in gold today.
It’s not great news for all potential gold investors though. Rising gold demand has and will continue to bring out scam artists and hucksters looking to swindle unwitting investors out of their life savings.
Here’s a list of three worst types of gold investments and how to make sure you’re avoiding a gold investment scam and investing in the right types of gold investments.
Gold Investment Rip Off #1: Newly Minted “High Grade” Gold and Silver Coins
One of the most popular Gold Investment Rip Offs is one your editor has a personal affiliation with.
Anyone who has published investment research on gold for as long (and as accurately) as we have, will be approached with deals “too good to pass up.”
Basically, the rip off wants to use your credibility to push their overpriced gold and silver coins.
Here’s how it works.
An aggressive coin dealer can buy coins directly from a major mint like the U.S. Mint. They will buy massive amounts of newly minted silver and gold bullion coins. They’ll usually stick to the most common coins like U.S. Silver or Gold Eagles.
They then unseal cases containing thousands and thousands of gold and silver coins. Then they send them to get graded by a professional coin grading firm like PCGS.
The coins that are graded PS-70 (Perfect Mint Condition) are then officially authenticated, sealed in a special container signifying their grade, and sold for a significant premium to their real market value.
Here’s where the scammy part of it comes in.
There is no real market for newly issued investment grade coins.
Sure, a Perfect Mint Condition Silver Eagle from 1990 is worth $1,000 or more – nearly 20 times the metal value.
The reason they’re worth so much is because they’re rare. The practice of taking coins straight from the mint to the coin grader was uncommon at the time. Now it is much more common.
They then advertise the newly minted graded coin as having much more capital appreciation potential than an ungraded Silver or Gold Eagle.
They’ll say something like, “Just look at the Mint Condition 1985 Silver Eagle. It’s worth over $1,000. Imagine how much this 2012 Mint Condition Silver Eagle will be worth in time.”
It’s the equivalent of those old collector plate infomercials. “They’re not guaranteed to go up in value, but all the others have.”
The thing is, the odds of history repeating are extremely slim because supply is so much greater as more newly minted coins are being grades. So there are going to be exponentially more Mint Condition 2012 Silver Eagles than there were Mint Condition 1990 Silver Eagles.
But that fact doesn’t stop the aggressive marketers. They still offer great “deals” for the newly minted high grade coins. And they add an extra 100%, 200%, or as much as 500% premium over the metal value of the coin.
Over the long run, the expected increased value will never be realized. But you still have to pay a significant premium today for little additional value later.
That’s just one of the common gold investment scams. There are plenty more of them which will cost unsuspecting gold investors even more.
Gold Investment Rip Off #2: Collectible European Gold Coins
One of the most pernicious gold rip offs is selling overpriced coins with little collectible value as highly collectible coins.
This isn’t a very widespread rip off. But for the few who have been caught by it, it has been very costly. Here’s an example of a complaint leveled at some of the country’s most-advertised gold retailers.
Some of the world’s most heavily advertised gold and bullion companies sell a full range of precious metals products. The dealers offer everything a potential investor could want. They sell precious metals in pure bullion (bars), bullion coins (like ungraded Gold American Eagles), and numismatic coins (rare and/or collectible). But here’s where the rip off part comes in.
Most of these firms have commissioned sales teams. There’s nothing wrong with commissions normally of course. But in some cases their commission structures make it more likely for the company’s sales staff to push people into much less liquid and more costly precious metal investment options than the investor really wants or needs.
For example, an average salesperson would probably earn a $5 or $10 commission on selling a U.S. Gold Eagle. The market for these coins is highly efficient. And it’s tough to charge more than a 5% premium over the spot price of gold. There are just too many dealers out there competing for your business to get away with charging larger premiums for long as their customers find better options.
On the other hand, the potential room to move on a much less popular coin which isn’t widely bought and sold. For example, the 1914 British Sovereign which contains a little under a quarter ounce of gold, is not in nearly as an efficient market as U.S. Gold Eagles. As a result, a misguided salesperson may be able to sell these and get away with charging a 50% premium or more over their real value. The sales commission on something like this could be $100 a more – 20 times more than the U.S. Gold Eagle.
Either way, once the purchase is made, a $1,000 “investment” could easily be worth as little as $500 the same day the purchase is made.
If you’re looking to invest in gold as protection against inflation, stick to the common bullion coins. You won’t get ripped off in those and they likely fit your investment demands better anyways.
Now, that’s a horrible deal. But there are worse rip offs out there.
Gold Investment Rip Off #3: Don’t Buy Anything “As Seen on TV”
One of the most aggressively marketed and worst gold “investments” (I hesitate to use that word at all here) are the “gold clad” or “gold plated” coins.
You’ll often see these types of “gold” coins pitched on television or hear offers for them on the radio.
They’ll have any sort of feature which they think could get your emotions going. Some of the best-selling versions come with imprints of the New York World Trade Center or a past president on them.
The key is they are only clad or plated with gold and contain very little gold.
Editor’s Note: The difference between gold clad and gold plated is the metal underneath. A gold clad coin is usually made out of silver. A gold plated coin is made primarily out of a base metal, usually copper.
Again, technically these are not “scams.” By definition the sellers of these coins state they are only gold clad or plated. But the value of the gold contained is miniscule compared to the retail price of the coin they will result in the same financial losses as a scam.
Consider a “Gold Clad Eagle in Velvet Box” offered at Coins for America.
This coin is made up of a U.S. Silver Eagle and a coating of gold. A silver eagle contains an ounce of silver and is currently for sale for about $30 (they’re usually a couple of bucks over the price of silver).
The coin also contains 31 milligrams of gold. That’s how much it takes to coat a coin the size of a U.S. Siler Eagle.
That may sound like a decent amount of gold, but it’s not. It’s the equivalent of just over 1,000th of an ounce of gold. At $1600 an ounce gold, that’s $1.60 worth of gold.
So the total contained metal value of the coin is $31.60.
Meanwhile, the retail price on this coin is $57.95 (marked down from $65.95…just for you!).
So if you bought one and tried to sell it to a coin dealer, you would have paid $58 and would get, at best, $32 if you wanted or needed to sell it.
Again, this isn’t technically a scam. But it sure will feel like one if you your $58 investment is worth $32 the day you buy it.
The Best Kinds of Gold Investments to Make
As you can tell, there are a lot of scams that seem legitimate, are legal, and can end up costing you a lot of money.
That’s why we stick to our list of the best kinds of gold investments.
Those types of gold are much easier to buy and sell and they will keep you from starting out 30% or 50% behind on your investment.
As Per Contrarian Strategies, gold will be one of the best investments of the next decade. But you’ve got to ensure you’re buying at the right price to enjoy all of the capital appreciation potential.
Executive Editor, Contrarian Insights
The Group of Big Investors in United States.
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