If it sounds too good to be true, it probably is. Any investor should bear this in mind when considering which assets to buy. This is perhaps more true when the assets are digital. Scepticism is equally healthy when taking delivery of a physical asset like gold. Legal or illegal, there are many different types of gold scam. All scams are designed to defraud naive investors looking for a valuable safe-haven asset. Such scams usually peak when the gold price is rising, taking advantage of demand momentum and a squeeze in supply.
All that glistens is not gold
You might think it is cheaper to buy gold outside of a reputable channel, but you don’t know if the gold is real. Gold jewellery or coins purchased from social media sites cannot be verified before you receive them. Even if you view the product before purchase, it isn’t easy to verify the gold content or purity without an expert.
Companies selling on social media
Some of the more obvious scams on social media involve sellers claiming to be from central or north Africa. They might ask you to come to them to buy gold dust, ingots or bars for a price enticingly below the spot market value.
Such scams are easy to find. Just google “gold sellers on [insert favourite social media platform].” You will uncover pages of enthusiastic profiles and posts imploring buyers to come to Ghana or Kenya, where gold awaits. While savvy investors will undoubtedly be unmoved by these messages, they work on the law of averages. It may still be possible that someone approached via these channels can still be scammed.
The bite test
The idea that you can bite into gold to check it is real has its basis in fact. Gold in its pure form is soft, and a bite will leave indentations. Ask any swashbuckling Hollywood pirate worth their salt. There are several reasons however that it is not a reliable or advisable method of gold verification. Other soft, malleable metals can be plated to appear gold but which also pass the bite test. The more cautious investor might also question the negative effect teeth marks on a precious gold coin or bar might have on the object’s value!
The private sale risk
Not every private seller online will be selling fake gold. In some instances, there are people legitimately looking to sell on their assets privately. However, choosing to buy from an individual or online organisation that has no provenance is very risky.
Hallmarks -The Gold Standard
Knowing the hallmarks of a gold item will go some way to avoiding unscrupulous sellers who may try to pass off inferior or counterfeit items. The gold hallmarks found on jewellery have been in use for hundreds of years. They were brought in as a form of consumer protection so that people of the 1200s could also avoid scams. Back then, state-appointed assayers marked the precious metal.
Coins and bars of investment-grade gold are not mixed with alloys and are required to be of 99% purity. Their intrinsic value lies primarily – or only – in their gold content. The London Bullion Market Association sets quality standards for gold bullion. LBMA manages a ‘Good Delivery’ list of refiners that meet their criteria. Bars are stamped with a unique serial number, the refinery, the weight and the purity.
Gold coins don’t have serial numbers. They are identified by their distinct markings depending on their denomination, weight and type.
Gold Coins: knowing their worth
There is a thriving numismatic industry of collectors of rare and valuable coins, some selling for far more than just their weight in gold. Scammers or unscrupulous sellers can use this market to persuade people to overpay for their goods. The shocking truth is that such activity isn’t always illegal.
Buyers should be wary of anyone selling gold that can’t or won’t be delivered. Such scams take on a variety of forms. There are several mining company scams where the gold is yet to be brought out of the ground. Buy it now, and you will get it at well below spot value. You may need to wait several years for the so-called ‘investment’ to come to fruition, by which time the scammers and your money are long gone. You may also be told that coins are being held in escrow when in fact, they don’t exist.
Legitimate trust signals
Of course, many legitimate and experienced investors don’t ever take delivery of their gold. Bullion or coin buyers purchasing through a reputable dealer will most often choose to have it stored directly from sale. The key difference to look for is that the company selling the gold should have a good reputation. Look for evidence in online forums like Ekomi or Google reviews. Membership of relevant associations can also help you to avoid scam investments. Look for companies that are members of the Royal Numismatic Association, British Numismatic Association or British Chamber of Commerce.
Buy Back Guarantee confidence
Companies that are confident in their products will offer a buy-back guarantee. This reassures buyers they can liquidate their investment when they choose to. It also proves the seller has confidence in the value of the gold they sell and buy-back.
Buying gold can seem daunting. Companies can’t tell you what to buy, so researching is essential when investing in precious metals. Choosing a company with a consultative approach can help immensely. You can build your understanding of what is available in the market and make an informed choice. You can also get guidance on the tax treatment of gold or silver. If they also offer that all-important buy-back guarantee, it reflects their trust in the products they sell. Taking the time to understand what you are buying and how to maximise your return will go a long way to avoiding gold scams.
The pandemic is not over, and safe-haven investing is still very popular. If an offer seems too good to be true, don’t bite.