WARNING: Gold Buying Rip-offs – Borrow to Buy
I continue to receive calls from investors who has fallen victim to one of the hot gold buying telemarketing pitches.
The basic pitch – “You put up a little money, we’ll borrow you the rest.” These telemarketing firms promise that if you will give them a modest sum, they can multiply that investment many times through the use of leverage. For instance, if you put up $20,000 they will borrow you, or leverage that amount, 5 times for a total of $100,000. So now, you control 5 times the amount of gold as the money you put down! Very tempting to many people, until you pull back the covers.
First, you are paying at least a 15% commission for the items purchased on your behalf. Then, you are paying 20% or more on the money they borrowed you. Next, you are paying storage fees of 5% or more to the facility where your metals are being held – supposedly being held that is. Many firms have been prosecuted for never purchasing the gold at all and only claiming to be storing it in a depository or other storage facility. Finally, you can’t take possession of your metals because you don’t own them outright.
But, it gets worse. What most people don’t realize is that they have entered into an unregulated commodity futures-type contract. Futures contracts mean leverage. And leverage cuts both ways. 85% of futures speculators lose money. If the price goes up – your earnings go up by a factor of 5. If prices go down, you receive a phone call demanding more money or the loss of your $20,000.
The worst news is that people are being defrauded all the time. Those who call tell their woes of disconnected numbers, closed businesses (often reopened under a different name) and metals that never existed. The good news is that most of these firms are beginning to be shut down.
Axiom: If you can’t hold it, you don’t own it. Buy your metals, take personal possession. The only exception is an insured depository. I use Diamond State Depository in Delaware to store the silver bars in my IRA.
