A Golden Opportunity for a Scam

Daily Reckoning
Nilus Mattive

This post A Golden Opportunity for a Scam appeared first on Daily Reckoning.

Dear Rich Lifer,

If a rising tide floats all boats, what do rising gold prices get you?

Con artists…a lot of them!

With talk of a looming recession, the price of gold has risen to a level we haven’t seen in over five years.

And with climbing gold prices, we’re seeing more and more con artists crawl out of the woodwork.

A U.S. Senate Special Committee on Aging report found that over 10,000 Americans have been the victims of precious metal cons, with losses amounting to $300 million.

The stories are tragic, with some couples losing their entire life savings to the scams.

Con artists will do anything to get your money. From ads claiming gold prices below market value, to bait-and-switch tactics, and overcharging.

But have you ever wondered why gold attracts so many bad characters?

The Largest Gold “Scam” in History

Part of the reason could stem from the fact that gold as an investment was illegal for 42 years.

Executive Order 6102 — often considered the largest gold “scam” in history — was signed in 1933, by President Franklin Roosevelt, “forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates” by U.S. citizens.

This led to a massive seizure of gold from safety deposit boxes around the country.

Some U.S. citizens were lucky and able to transfer their gold to countries like Switzerland, but others had to take the $20.67 per ounce offered by the government in exchange for their gold.

The gold prohibition lasted until 1975. During this time the black market for precious metals grew rapidly and when Uncle Sam finally re-legalized gold, con artists took advantage.

The gold prohibition also led to a patchwork regulatory environment that lasted decades. The Securities and Exchange Commission said precious metals weren’t securities, and thus did not fall under its domain.

The Commodity and Futures Trading Commission had jurisdiction over some gold-selling arrangements, but not others.

Although the CFTC now has clear jurisdiction, there are still several exemptions that make enforcement tricky. That’s why today you see a lot of gold fraud scams being exposed through a state attorney general or financial regulator rather than a federal agency.

Why Is Gold So Attractive to Scammers?

There’s something about the yellow metal that makes it easy to pull the wool over the eyes of even relatively sophisticated investors. Probably due to the fact there are so many ways you can pitch it.

If you don’t want to buy gold bullion, you can buy gold “collector” coins. If you don’t like gold coins, you can invest in a gold mine. Scam artists can spin it any which way they want to suit their motives.

Now I’m not saying you shouldn’t invest in gold or that the aforementioned are illegitimate in any way. I’m just warning you that given the current climate, you need to be extra cautious.

So here are my five gold scams to watch out for:

Scam 1: The Bait-and-Switch

A common ploy is for fraudsters to lie about the condition of a gold …read more

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