Lies and Myths Told by Gold Dealers

Lies and Myths Used by Gold Dealers

We have heard and seen it all in the twenty plus years we have been buying and then selling precious metals.  At the end of the day, there is nothing new under the sun, and the lies and myths used by gold dealers are essentially those you see outlined here.  Inform yourself and don’t be taken advantage of.

The Biggest Myth – Gold Confiscation

Some precious metals firms employ a multitude of lies and myths in their selling practices in order to increase their profits.  The most commonly used myth is that of gold confiscation.  Dealer sales representatives try to develop fear around the idea that the government may again call in gold as it did in 1933 and that “reportable” transactions are preludes to confiscation. Why do they do this?  Quite simply in order to sell you higher margin numismatic, rare and antique coins – simply for their own profit.  Should you buy these coins?  Absolutely not, unless you are a collector and wish to pay more for collecting purposes.

Avoiding Confiscation

The most frequently used technique to promote high-priced numismatic and rare coins is to insinuate that bullion is subject to potential government confiscation in the future. Many telemarketers tell investors that these expensive numismatic and antique coins would not be “subject to confiscation,” leaving the impression that modern gold bullion coins are. Consequently, many investors buy old U.S. gold coins at prices significantly higher than the value of their gold content. The idea of buying “non-confiscateable” gold sounds like a powerful argument but it really does not hold any merit.  Yet, you will have a sales representative tell you that there is safety in buying numismatic coins, rare/antique coins, and proof coins.    That these coins are somehow free of any confiscation risk in the future, whereas low premium bullion will immediately be at risk.  They will tell you that premiums of 15%+ immediately put a coin in to the category of collectible, and thus is protected.  This is all simply to instill fear and coerce an investor to buy higher margin products.

No federal law or Treasury department regulation supports these contentions.

The myth that specific types of gold coins are “not confiscateable” stems from the Executive Order that President Roosevelt issued in 1933 calling in gold. The Executive Order exempted “gold coins having a recognized special value to collectors of rare and unusual coins,” but it did not define special value or collector, and certainly not numismatics.

Again, despite the lack of regulation, telemarketers will promote numismatics and antique coins in order perpetuate this myth because it makes it easier the to sell these high-priced coins. Just because Roosevelt exempted “gold coins having a recognized special value” does not mean that any future call-in would exempt collectibles. Roosevelt’s Executive Order would have no legal binding on another gold call-in.

More importantly, on December 31, 1974, with Executive Order 11825, President Gerald Ford repealed the Executive Order that Roosevelt used to call in gold in 1933. This was necessary because on the same day Congress restored Americans’ right to own gold.

Furthermore, in 1977 Congress removed the president’s authority to regulate gold transactions during a period of national emergency other than war. Even if a law did exempt certain coins from future confiscation, the government could change that law.

As we all know, our government often simply ignores laws. Dealers who say they sell “non-confiscateable” gold have no grounds for making such claims. For further discussion of this matter, assume there were another gold call-in. Would old U.S. gold coins, which make up the bulk of the “non-confiscateable” market, be exempted? Probably not because they are common coins. (The old U.S. gold coins most often promoted are the $20 Liberty and the $20 St. Gaudens, also known as Double Eagles. A $10 coin is called an Eagle, a $5 coin a Half Eagle, and a $2-1/2 coin a Quarter Eagle.)

Investors wanting to buy gold should go with the bullion coins: American Gold Eagles,  Canadian Maple Leafs, or South African Krugerrands. These coins are highly liquid (easy to sell) and carry low premiums (amount paid over the spot price.)  In addition, any reputable dealer can easily authenticate these coins for you.

Avoid European Coins

Another “free from confiscation” fallacy lies in European coins that telemarketers suggest are safe from confiscation if dated prior to 1933.  Worse yet, these telemarketing firms buy these European bullion coins for a few dollars over the spot price and then significantly mark them up and market them as rare, with numismatic potential.  You can see these coins on our site here at average market mark-ups (not inflated prices) for comparison.

These are the most common imported coins that are pushed by telemarketers as “rare”:

  • Swedish Kroners
  • Danish Kroners
  • Dutch Guilders
  • Belgium Francs
  • Swiss Francs
  • British Sovereigns

Should you buy these European coins?  Not for the purpose of avoiding confiscation.  Yes, if you are a collector and would like to own unique coins from around the world.    Remember that these European coins have little or no numismatic value.  Their different countries of origin are often appealing to collectors, but they are essentially bullion coins that carry a higher premium than U.S. or Canadian bullion.

Also note that European bullion comes in unusual weights such as .2354 oz or .1867 oz., versus the 1 oz, 1/2 oz, 1/4 oz and 1/10 oz common weights that are more easily understood and recognizable.  Another detriment is that European coins do not have their gold content stamped on them like U.S. and Canadian bullion.  If these coins are ever needed in an emergency and you need to barter with them, they will be less easily recognized by the common individual.

If you choose to buy fractional (less than 1 oz) coins, you will be better served by buying fractional Gold American Eagles, Canadian Maple Leafs and Krugerrands.  All of these fractional coins come in recognizable percentages of an ounce and clearly have their gold content stamped on them in English.

Reportable Purchases

The second biggest scare tactic that telemarketers employ is that of “reportable precious metals purchases”.  They falsely insinuate that gold dealers are required by the government to report your transactions.  This is simply not true.  There are NO government regulations that require the reporting of any precious metals purchase.

Reporting IS required if payment is made in cash greater than $10,000.   This reporting requirement is a cash reporting transaction and is applicable if you are buying any product on the market.  The government desires to track the cash, not the gold or silver you are buying.  The Official General Instructions for IRS Form 8300 are:  ““Who Must File – Each person engaged in a trade or business who, during that trade or business, receives more than $10,000 in cash in one transaction or two or more related transactions must file Form 8300. Any transactions conducted between a payer (or its agent) and the recipient in a 24-hour period are related transactions.”   If you bought $10,001 in rubber duckies, the merchant would have to report the cash transaction.

This regulation applies to ALL cash transactions – it does NOT apply to personal checks, wire transfers, or money market withdrawals. When cashier’s checks or money orders are involved, cash reporting may be applicable. Form 8300′s General Instructions defines cash as: “a cashier’s check, bank draft, traveler’s check, or money order having a face amount of not more than $10,000.” Using a cashier’s check less than $10,000 would be a “cash transaction,” but it would not be reportable because it is less than $10,000. However, two cashier’s checks, each less than $10,000 but totaling more than $10,000 for a single purchase, would be considered cash and subject to reporting. Personal checks or checks drawn on the payer’s own account are not considered cash. Form 8300′s General Instructions read: “Cash does not include a check drawn on the payer’s own account, such as a personal check, regardless of the amount.”

Related Transactions

Form 8300′s General Instructions say “Transactions are considered related even if they occur over a period of more than twenty-four hours if the recipient knows, or has reason to know, that each transaction is one of a series of connected transactions.” For example, if an investor agrees to buy $20,000 in gold but makes installment payments with cash in amounts less than $10,000, the purchase would be reportable.

Bank Reporting

It is often thought that banks report to the government all personal checks more than $10,000. This is not true. However, a cash transaction exceeding $10,000 requires a bank to fill out and file a Cash Transaction Report (CTR).  A cash deposit more than $10,000 to any bank or other financial institution account by an individual possibly will likely be reported. However, purchases of cashier’s checks with cash for amounts $3,000 to $10,000 require banks to complete Monetary Instrument Reports (MIRs). (Some banks call them Monetary Instrument Logs.) MIRs are not filed with the government but are records that enable banks to help comply with cash reporting requirements. It is not clear when a MIR requires the completion and filing of a CTR, but an individual regularly purchasing cashier’s checks between $3,000 and $10,000 would probably be reported.

If a business reports a cash transaction, the customer will know it. Form 8300 requires name, address, citizenship, and social security number. It also asks for method of identification, driver’s license, passport, etc. Additionally, Form 8300′s General Instructions call for anyone filing a Form 8300 to “provide a written statement to each person named in a required Form 8300 on or before January 31 of the year following the calendar year in which the cash is received.” Finally, Form 8300 General Instructions has a box to be marked if the transactions appear “suspicious.” The box can be marked for transactions less than $10,000 if the recipient believes the purchaser is trying to avoid cash reporting. No one wants any red flags at the IRS. Unscrupulous dealers know this and use it to avert clear thinking; they use the threat of “reporting” to raise investor fear. This enables them to sell overpriced coins. Investors justify higher prices by thinking they are getting “non-reportable gold.” No investor need be taken advantage of this way.

Reportable Sales

Customer sales to dealers of certain precious metals exceeding specific quantities call for reporting to the IRS on 1099B forms. The 1099B forms are similar to other 1099 forms taxpayers commonly receive; the “B” means they have been issued by a business other than a financial entity. Reportable sales (again, customer sales to dealers) apply to 1-oz Gold Maple Leafs, 1-oz Krugerrands, and 1-oz Mexican Onzas in quantities of twenty-five or more in one transaction. Reporting requirements do not apply to American Gold Eagles, no matter the quantities. Furthermore, reporting requirements do not apply to any fractional ounce gold coins. Only one common silver product is reportable when sold: pre-1965 U.S. coins.

The quantity that causes the filing of a 1099B, however, is not clear. The IRS bases its authority to require reporting on CFTC-approved contracts that call for the delivery of $10,000 face value. Consequently, many dealers do not report sales of pre-1965 U.S. coins unless the sale totals $10,000 face value; others report $1,000 sales. Sales of American Silver Eagles, privately-minted Silver Eagles, and 100-oz silver bars are not reportable, no matter the quantity.

Other precious metals products are reportable, but they are not covered here because the average investor does not trade them. Most investors have no first-hand knowledge of these matters; consequently, when precious metals dealers talk about cash reporting, 8300 forms, or 1099s, investors are unable to know that they may not be hearing the whole story. Wanting to avoid the government knowing about their precious metals investments, many investors are delighted to learn that their purchases will not be reported and end up buying overpriced coins.

Precious metals investing is simple.  Stick with mainstream, low-premium bullion such as Canadian Maple Leafs, American Eagles, Krugerrands, and silver rounds and bars for your primary purchases.  If you want to add variety, there are a number of mainstream gold bars such as Pamp and Credit Suisse.  Find a dealer that will help you to strategize your diversification of products and to help you source the lower premium items based on the current market.

As explained under “Reportable Purchases,” no precious metals purchases are reported unless cash reporting thresholds are exceeded.  As in all financial and legal matters, you should consult your attorney and your CPA, we simply do not provide financial or tax advice.

All of the content provided here is for editorial purposes only.