Thinking About Buying Precious Metals? Caveat Emptor.
Caveat emptor is Latin for let the buyer beware, meaning the buyer assumes the risk in a transaction. At a garage sale, buyers should expect items “as-is†with little or no recourse if those goods turn out to be defective.
Sellers of other products and services – like automobiles, public accountants or banks – are held to a higher standard. They’re required to offer adequate disclosure and take responsibility for defects or omissions that buyers may not recognize in advance of a purchase or contract.
The precious metals industry, which is promoted through high-pressure sales tactics and aggressive advertising, is not a regulated industry, so buyer beware. Gold, silver and other precious metals may be terrific investments, but only if you familiarize yourself with the economic and contractual details before you buy.
Unlike the securities industry, the precious metals industry has no overseer or “watchdog†agency. As a result, the Better Business Bureau receives complaints like these:
· James tried to return his gold coins but the broker wouldn’t return his calls until after the 10-day return period had expired.
· Suzanne failed to verify the price per ounce of her gold transaction, which was made over the phone, and was shocked to find her investment had lost thousands only days after her purchase.
· Amit threw away the documents from a purchase he made of silver coins in 2003 that would have served as evidence to the IRS. The broker has since gone out of business and reopened under a new name.
· The gold broker promised David it would buy back his coins. He failed to read the terms and lost $2000 on a $5000 investment.
· Bruce was charged a 33% fee to liquidate his gold account, which cost him $50,000 in fees.
· Josh bought gold coins from a broker who shipped them to a trustee in Waco, TX. He was hit with a $500 storage fee and still doesn’t know how many coins are in “safe keeping†in his account.
Before falling for an aggressive gold or silver dealer’s lofty claims, familiarize yourself with three things: product, possession and legality.
Product. What exactly are you buying? Gold coins? Silver bars? Physical or paper? How many? How are they marked? Who else sells the same products so you can compare? At what price? If the broker will buy back, when and at what price? Will there be a liquidation fee? Get all transactions in writing.
Possession. If you don’t store the metals, who will? If a trustee or agent, who? For how long? How much are their fees? Is your investment insured? How much will the broker charge you to swap your metals for another product?
Legality. What happens if the broker or agent goes out of business? How can you be sure the IRS will favorably recognize your investment in a gold/silver IRA?
Brokers love selling precious metals because they make money on commissions.
The more they sell, the richer they become, especially when investor sentiment is skittish. Seniors are especially vulnerable.
If you choose to invest in precious metals, be smart about it. Here are some more buying guidelines:
· Research metals dealers carefully before you buy. Visit bbb.org and read the ratings, complaints and reviews.
· If you’re buying collectible coins, ask for the coin's “melt value,†which is the basic intrinsic bullion value of a coin if it were melted and sold. The melt value for virtually all coins and collectible coins is widely available.
· Get an independent appraisal of the specific gold product you're considering. The seller's appraisal might be inflated.
· Consider additional costs. You may need to buy insurance, rent a safe deposit box or rent offsite storage to safeguard your investment.
· Some sellers deliver coins, bullion or bars to a secured facility rather than to a consumer. When you buy metals without taking delivery, make sure that the metal exists and is of the quality described and and is properly insured.
· If the broker tries to tell you a risk disclosure is a mere formality, walk away. He should be upfront about the risk.
· Always get a receipt.
Finally, don’t rush into any transaction. Time is on your side. A few extra hours spent doing your homework can save you a lot of grief and potentially a huge loss.