Educational Consumer Tips
Better Business Bureau
Investing in Gold? What's the Rush?
You see the ads on TV and online, and you hear them on the radio: they tout gold as a solid investment. It's true that people sometimes use gold to diversify their investment portfolio: it can help hedge against inflation and economic uncertainty. But how much gold to buy, in what form, at what price, and from whom, are important questions to answer before you make that investment.
The Federal Trade Commission (FTC), the nation's consumer protection agency, says if you are interested in buying gold, do some digging before investing. Some gold promoters don't deliver what they promise, and may push people into buying one form of gold over another.
All Gold is Not Created Equal
You can buy gold in a variety of forms: Gold Stocks and Funds – Buying stock in a gold mining firm or buying into a mutual fund that invests in gold bullion is a common way to invest in gold. Most brokerage firms buy and sell these financial instruments. Gold stocks and mutual funds may offer more liquidity than actual gold, and there's no need for an investor to store or protect gold investments purchased in this form.Bullion and Bullion Coins – Bullion is a bulk quantity of precious metal, usually gold or silver, assessed by weight and typically cast as ingots or bars. Many major banks and dealers sell bullion. Bullion coins are struck from precious metal – usually gold or silver – and kept as an investment. They are not used in daily commerce. The value of bullion coins is determined mostly by their gold or silver bullion content rather than by rarity and condition. The prices change daily, depending on the prices for gold and silver in the world markets. Major banks, coin dealers, brokerage firms, and precious metal dealers sell bullion coins. The U.S. Mint has produced gold, silver and platinum bullion coins for investment purposes since 1986 and guarantees their precious metal content.Collectible Coins – These coins have some historic or aesthetic value to coin collectors. Most collectible coins have a market value that exceeds their face value or their precious metal content. This so-called collectible value is often called numismatic value. The coin dealers who sell collectible coins often have valuable coins graded by professional services, but grading can be subjective.
Facts About Buying Gold
Regardless of the form of gold you may invest in, consider these universal truths:
The price of gold fluctuates over time. There is no guarantee that gold will increase in value. The prices dealers charge for gold products, like bullion and coins, are almost always higher than the value of the gold the products contain. You don't always get what you pay for.
The government cannot confiscate your gold at any time. But some unscrupulous sellers say that the government may, indeed, confiscate gold, and that "reportable" transactions lead to confiscation. Other crooked sellers claim that modern bullion coins produced by the U.S. Mint are subject to confiscation while historic or collectible coins aren't. This claim sometimes leads some people to buy historic coins at prices that exceed their value. No federal law or Treasury Department regulation supports these contentions.
Investigate Before You Invest
Whether you are buying gold stocks and funds, bullion and bullion coins, or collectible coins, the FTC says do your homework first: If you are buying bullion coins or collectible coins, ask for the coin's melt value – the basic intrinsic bullion value of a coin if it were melted and sold. The melt value for virtually all bullion coins and collectible coins is widely available.Consult with a reputable financial advisor you trust who has specialized investment knowledge.
Get an independent appraisal of the specific gold product you're considering. The seller's appraisal might be inflated. Walk away from sales pitches that minimize risk or sales representatives who claim that written risk disclosures are formalities required by the government. Reputable sales reps are upfront about the risk of particular investments. Refuse to "act now," regardless of the consequences. Any sales pitch that urges you to buy immediately is a signal to walk away and hold on to your money. Check out the seller by entering the company's name in a search engine online. Read about other people's experiences with the company. Try to communicate offline if possible to clarify any details. In addition, contact your state Attorney General (www.naag.org) and local consumer protection agency (www.consumeraction.gov). This kind of research is prudent, although it isn't fool-proof: it may be too soon for someone to realize they've been defrauded or to have lodged a complaint with the authorities.
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