Beware of Ponzi-like gold scams

Always remember, caveat emptor (buyer beware)

It is important for each one of us to do due diligence, in whatever endeavors we undertake. When it comes to precious metals investing, for example, you could not afford to think that just because the investment is sound, it follows that you can’t go wrong.

Look at all the gold exchange-traded funds and mutual funds whose values are derived from gold futures, the physical gold of which does not even exist. If you try to have such paper gold delivered, you’ll be left with nothing. This is why we advocate buying physical gold, the type that is stored in finite supply in your residence, or in our vault.

But even within the physical gold market, we can expect scammers to spring up, finding a way to defraud investors. Here’s a tip: whenever you hear about a certain company, just search on the Web, ‘Company X scam.’ If the search results show a lot of complaining customers or court cases, stay away!

Note, however, that these companies are aware of their Google-savvy potential clientele. The company may have ‘planted’ their own positive reviews that have the search word ‘scam’ in them. But if something is fishy, this will likely be reflected in the volume of negative results. Bottom line: if anything is too good to be true, it probably is.

Interest payments on gold?

At BullionStar, we claim nothing more than that precious metals, which we offer at the lowest prices anywhere, are better to have than any other currency. And because of the inflation-based global monetary system, it is often better to hold stable money like gold and silver rather than most stocks especially during economic downturns. Whatever returns you get from precious metals are derived from the metal itself, not some kind of dividend.

Gold is a one-of-a-kind medium of exchange. There’s nothing like it. But it doesn’t provide annual yields or dividends. Be suspicious if you are ever offered interest payments in exchange for holding your gold. Ask yourself, where is this money used to pay dividends coming from?

The classic Ponzi scheme is one where payments to investors/members are derived from additional recruits who pay into the scheme. In the case of gold scam artists, they’re not making their money by simply selling to gold investors. They’re selling at such above-market prices that they are able to fund their operations.

How gold scammers operate

What happens is that the pricey gold is offered at a small ‘discount,’ that is a discount from their exorbitant prices. You are given the option of the company buying back your gold at full price, that is, at the full exorbitant price. And the money used to buy back the gold from you must be derived from new recruits. Meanwhile, these new recruits buy the ‘discounted’ gold in the expectation of returns from selling it back to the company at a later date.

Such a system is highly impractical and unsustainable. With premiums of around 25% spot price of gold, what happens when you run out of dupes who are willing to buy high? Your ‘dividends’ are obliterated.

You might derive some comfort that you are left with your gold — if they actually deliver the physical gold to you. But then, you could have bought the gold at much better prices almost anywhere else. In addition, such gold is of questionable quality. Looking at the products offered by some of these companies, the bars being displayed are of obscure brands. To whom can you sell these bars in the future? This is important, considering the potential for fraud or counterfeiting of metals. It is always best to buy trusted and reputable brands.

Avoid being fooled

Do not be led by rhetoric that you read off some website’s banner. It is possible that they are making money off people’s growing interest in gold and silver, while not necessarily providing them with good investment options.

Even when something sounds nice and truthful, go by the facts. It’s not enough that a company proclaims the right thing, e.g. bullishness in gold, but that their business model is based on this, and not shady practices.

The scary thing is these scammers are still in operation, in Singapore, Malaysia and other Southeast Asian countries, always looking for people who aren’t aware of how a Ponzi scheme could be applied to the precious metals investing sector.

Better options

Make sure you get your physical bullion at the most competitive prices, and that you are ensured of physical delivery. And in the case where you opt for vault storage of your precious metals, make sure a third party can verify the presence of your bullion in the vault.

Apart from improving the regulatory aspect, it is important to instill in people the practice of due diligence before they put their money somewhere.

We at BullionStar hope to help in getting the truth out, and allowing competition to really dictate what businesses last, and which ones disappear from a lack of suckers.