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How to Spot Fraud in a Gold Investment

By    |   Saturday, 11 July 2015 10:58 PM

Spotting fraud in a gold investment requires vigilance and some healthy skepticism on your part if you're being asked to invest in gold. As Reuters reports, gold investment fraud has been rampant enough in recent years to draw the attention of Congress.

But expecting the government to protect you from gold scams is not a strategy for avoiding them. As a potential investor, it's on you to demand transparency of any person or company offering a return on gold purchases.

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That means asking tough questions, and not just of telemarketers or other sales representatives. Your guard should be up even if the sales pitch is coming from someone you know, such as a well-intended family member or friend, who might unwittingly be passing along bogus investment information.

The U.S. Commodity Futures Trading Commission (CFTC), a regulator in this area, offers a list of warning signs that a pitch to invest in gold might be fraudulent. Here are some from the CFTC as well as from other watchdogs and industry insiders with fraud-spotting expertise.

1. “Inside Information”
A self-described "metals dealer" urges you to act quickly on "inside information," perhaps some imminent political, technological or economic shift, that will soon send the price of gold sharply upward. Beware, for example, of hints at some game-changing breakthrough in mining techniques, as this is likely to be hype or outright fabrication dressed up as profitable intelligence, FraudGuides.com reports.

2. Current Events
A gold seller uses a widely reported current event in the news — a war, a natural disaster, a mining accident — as the basis for buying investment-worthy gold.

3. Loans
Someone offers you the "opportunity" to take out a loan, with interest, to finance a purchase of investment gold that will pay dividends at a later date, and says there will also be a fee charged for storing your purchased gold. The CFTC has found instances where no gold was purchased, no storage facilities existed and customers were charged bogus interest on phantom loans that were never taken out.

4. No Returns
Any gold sales pitch promising rapid returns and minimal risk, and no offer of a refund — since, as Scottsdale Bullion & Coin reports, "Reputable dealers offer return policies as a sign of good faith to their customers, while scam artists who deal in counterfeit goods are unlikely to buy back your gold."

5. Price Shifts
Offers to buy gold at below-market rates. According to the CFTC, the seller may be using an illusory discount to bait the hook for a follow-up scam in which the buyer is suddenly asked to pony up extra money because the price of gold has shifted.

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6. Incomplete Information
Any sales pitch that seems to rest on sketchy, incomplete information. When asking questions — What is your background in gold? Where will the gold be stored? Which bank is financing the loan? — answers such as "More on that later," or "That's confidential," or "I'll get back to you," are not acceptable.

7. Pressure
Any pitch that feels pressure-packed and designed to deflect questioning or reasoning. "Their goal is to get you into a heightened emotional state," Doug Shadel, senior state director for AARP Washington and author of "Outsmarting the Scam Artists: How to Protect Yourself from the Most Clever Cons," told ABC News.

8. Credentials
A person identifying himself as a licensed commodities trader, as opposed to a telemarketer, should be listed on the website of the National Futures Association, an investment professionals trade group. So look him up, not just to verify his status but to see what else is in his history. The Federal Trade Commission, for example, has found that "many fraudulent companies were operated by brokers who had lost their license to sell stocks or futures because of deceptive sales practices," CNBC reports.

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Spotting fraud in a gold investment requires vigilance and some healthy skepticism on your part if you're being asked to invest in gold.
gold, investment, spot, fraud
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2015-58-11
Saturday, 11 July 2015 10:58 PM
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