Note to readers: This is the first part of a two-part series on gold scams. This part tells you how to protect yourself before you buy. Part two tells you where to go for help if you've already been taken.
Crooks go where the money is. Right now, that's in the gold market. As the price of gold has soared, an increasing number of consumers say they've been taken by unscrupulous fly-by-night gold dealers.
Just ask Howard Wolfe, a Mississippi retiree, who wired $20,000 to a Los Angeles gold dealer a year ago when gold's spot price was just $1,100. In theory, he's made a nice profit. In reality, he never got his gold--even though some $3,000 of his payment was supposed to pay for "shipping" costs. The dealer stopped returning his phone calls months before the company's phones were disconnected.
Meanwhile, Jerry Jordan, managing editor of The Examiner in Beaumont, Tx., has spent most of the past year investigating traveling gold buyers. These operations set up in hotel ballrooms and convention centers in areas hard-hit by economic woes and lure in desperate gold sellers by advertising that they'll pay "top dollar" for your collectible and cast-off gold, said Jordan. Reality is far different. Jordan borrowed valuable rare coins from a local gold dealer to see how much traveling gold buyers would offer. He was offered $60 for one coin that was worth $10,000; and offered $250 for another worth $13,000.
"They routinely offer pennies on the dollar," he said. "They have an internal motto: If the customer is not educated, do not educate them."
Meanwhile, a group of New York coin dealers were indicted last year for operating a boiler room scam that sold supposedly "rare" coins that were anything but. Postal inspectors claim that investors lost some $80 million in on the con. Worse, while two of the perpetrators were out on bail earlier this year, they launched a second boiler room operation that only closed when they were re-arrested.
"These guys just change their names and keep coming back with one scam after the next," said Mike Fuljenz, president of Universal Coin and Bullion in Beaumont--the dealer who lent Jordan the rare coins.
What do you need to know before you buy to protect yourself?
Spot price: The best way to buy gold is to purchase common coins, such as the American Gold Eagle, which should sell for 3% to 5% over gold's spot price. If a dealer says you should pay more, look elsewhere.
BBB rating: The dealer that took Wolfe's $20,000 without ever delivering his gold had a F rating from the Better Business Bureau. All you need to do to find a company's rating is type their name into the BBB's national search tool.
Dealer affiliations: Is your dealer a member of the Professional Numismatists Guild or the American Numismatic Association? If so, they must abide by a code of conduct and can be kicked out if they don't resolve legitimate disputes.
Dealer history: How long has your gold dealer been in business? Many of the fly-by-night operators have launched in the past two years, when interest in buying gold hit a fever pitch thanks to the steadily rising price. You could have problems with any company, but the longer the history, the more likely you're dealing with a legitimate company.
For a great primer on how to buy and whether it's too late to buy gold, check out Jill Schlesinger's video on CBS news here.
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