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In today's world, no industry is free from individuals willing to get other people's money through well-crafted scams. The gold IRA industry is no exception, and new cases of individuals losing all their investments to fraudulent practices are cropping up daily.
We want you to be on the safe side and have come up with this piece to educate you on the different types of gold IRA scams. Additionally, we will also provide you with tips on how you can avoid these practices.
Hopefully, you’ll learn something new today.
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The Different Types of Gold IRA Scams
Without wasting time, let us break down some typical gold IRA scams you will likely encounter as you save for retirement.
1. Unclear Contracts
In this type of scam, you will be enticed through an ad or email that you feel has an excellent offer. However, once you engage with the marketers, they try changing the story, such as convincing you to purchase something else.
In other instances, you may reach an agreement for a certain amount, but upon signing up, they start asking for more money. Some scammers assure you they will repurchase your gold at a higher price, but they turn their backs on you when you try to re-sell it.
Our Two Cents
The best way to avoid falling for this trap is to take your time to read the terms of the agreement thoroughly. Only sign things you understand or agree with. You could even consider hiring the services of a legal expert.
Always ensure that the terms are favorable and aim to safeguard your investment from fraud.
2. Storage Scams
This is one of the oldest gold scams and it seems to be making its way back in a big way. Here, the scammer will try to convince you that home storage is your safest bet. However, they do not fully divulge the risks involved with home storage as opposed to using the services of a licensed depository.
The main problem is that home storage could attract penalties from the IRS as the body does not consider gold to be a permissible investment for IRAs.
Further, home storage may not be insured and who knows? The same guys who scammed you into keeping your gold at home might want to send burglars to come for it.
Our Two Cents
Always ask your custodian to provide all the documentation proving that your gold is being stored according to industry standards. The depository/vault should have all the licensing and insurance to protect your investment.
3. Counterfeit Coins Scam
Another type of scam is whereby the company you settle for sells you fake coins, only for them to disappear once you make the payment.
A common feature of these companies is that they are outside the US. Since they don’t fall under federal laws, tracking them is a big challenge.
These fake coins tend to cost much lower than the spot price to entice you to go for them.
In extreme cases, even if you verify the coins to be genuine, the seller may still come up with a clever way to get them back or exchange them later. Before you realize it, the scammer is long gone.
A Real-Life Example
Daphne Clark (not her real name), a business lady from Denver, wanted to cushion herself in case of an economic downturn and thought of gold as the best way to do that. So, she sought the services of a company whereby a salesman convinced her to go for collectible coins.
He claimed that they outperformed the bullion by about 2 to 1 and that the company would repurchase them anytime. The fee was equally enticing, only a 1% brokerage fee. So, she went ahead and bought 14 coins.
After about six months, the price of gold dropped by over $300 and this got Clark worried about how much hers were worth. She tried calling the company for these details only for her calls to end up in the voice mail. Eventually, she decided to open her safe box to inspect her hoard only to be surprised that the coins looked dull and lifeless.
This got her suspicious and so she decided to have her coins appraised at a local shop. To her dismay, she discovered that the coins had been grossly overvalued and that she’d ended up paying up for a 35% markup. And as the value of gold plummeted, her situation kept getting worse.
She later found out through online reviews that the company had already been flagged by other customers as fraudulent. Further, the Santa Monica, California City Attorney's office had launched a consumer protection lawsuit against the firm for a nationwide fraud scheme.
Our Two Cents
It is wise to only purchase coins from authorized dealers with all the certifications that can easily be tracked. Further, always conduct prior research on a seller before engaging them so that you don't lose your hard-earned money to them.
4. Selling IRA-Ineligible Coins
When it comes to buying precious metals for your IRA, federal law states that you only purchase eligible coins and bars. To be eligible, the coins must be produced by recognized mints such as the US mint and the Royal Canadian mint.
Unfortunately, most of the ineligible coins are the most popular ones around. They include the Dutch Guilders, Belgian Franc, Mexican Pesos, German Mark, and British Sovereign, among others.
Yet, some of the eligible coins that you could choose from include American Eagles, Gold Pandas, and Canadian Maple Leafs, among others.
Another thing you should keep in mind is that federal law does not allow IRAs to own any form of jewelry.
Our Two Cents
Do not engage a salesperson who insists that you buy a coin due to its high collector's value. Instead, it would be best if you did thorough research to ensure that the coins are produced by recognized IRAs so that they do not mess up your account.
Besides that, ensure that the gold attains a minimum purity of 0.995% to become eligible for deposit into an IRA.
5. Shaved/Damaged Coins and Bars
Another scam you are likely to encounter involves the sale of shaved/damaged coins, rounds, and bars. In this case, the gold offered to you will have been tampered with so you end up paying more for less value.
In some cases, the scammer will drill holes in the bar and fill the gaps with lead, whose weight is almost similar to gold. Besides that, some conmen shave some grains of metal from the bars and coins.
Our Two Cents
The first way of avoiding this problem is by sticking with retailers with high levels of integrity. You can find this information by checking their reviews on sites such as Better Business Bureau (BBB) and Trustlink.
You could also examine the establishment, and if it arouses any suspicions in you, do not purchase anything from them.
Lastly, the IRA requires that any gold coins sent to the depository should be intact and in their original packaging. The gold should also be accompanied by a certificate of authenticity. Don’t cut corners, stick to that criterion always.
6. Rare Coins Scam
In this type of scam, a marketer will advertise his coins as rare, but after paying for them, he delivers common coins. It could affect both the buyer and the seller and we shall illustrate how:
You may encounter a gold dealer advertising a set of coins as being rare and offering them for an unbelievably low price. However, once you have completed the transaction, you realize that the dealer has sold you a coin that is less valuable than marketed.
More often than not, you will only realize what has happened when you try to sell your investment.
Here, the dealer makes an offer over the phone or online, subject to physical inspection of the coins. Once he has the coins in his possession, he makes a much lower offer. If you accept the offer, the scammer will give you less money hence a loss on your side.
If you decline, your coins may be swapped with those of a lower value which may closely resemble your original ones.
Our Two Cents
It is advisable to avoid the so-called rare coins and stick to bullion investments instead. The spot price of the two (rare coins and bullion) is almost similar, and yet in bullion, you get a trustworthy investment that you can bank on.
7. Affiliation Scam
The next type of scam is when a salesperson or company claims their products or services have been endorsed by recognized organizations such as IRS or Federal Trade commission. The aim is to earn your trust and make you less cautious as you transact with them.
Our Two Cents
It is up to you to conduct thorough research on a company and investigate whether its claimed endorsements are real. If any of these claims are untrue, you will likely be dealing with a scammer, and you should run for the hills.
8. Ponzi Schemes Scam
A Ponzi scheme is whereby a company pays old investors with money from new investors rather than sticking to the original agreement of investing in gold. The scammers will enrich themselves, and you are unlikely to see your money ever again.
These schemes are not the easiest to detect, but there are red flags that may serve as a warning sign. They include asking for too much money upfront, delayed shipment, and promises of high returns on your investment.
Our Two Cents
Be careful when selecting a gold IRA company to handle your investment and ensure that it meets all the IRS requirements. A reliable company will ship your gold to an approved depository, and there are unlikely to be any delays.
How to report precious metals investment scams
If you are a victim of a gold IRA scam, there are several federal and state regulators that you can reach out to for help.
They include The FBI's local field office, the Federal Trade Commission, and the United States Postal Inspection Service (for suspected mail fraud).
Setting up a gold IRA is a pretty expensive affair, and you should take all measures to ensure you do not lose some or all of your investment. The scammers are getting smarter by the day, and you should be diligent in protecting yourself from them.
We have highlighted the common gold IRA scams and how you can avoid them. This way we hope that you won't end up on the losing end.
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