You are correct to assume that investing in gold is a less risky move that say, investing in company stocks or in platinum and palladium. However, that does not mean that starting in the gold investment game is a walk in the park. As with all moves concerning finances, preparation and good research is imperative.
Attracted by the steadily increasing prices of precious metals, especially the always in demand gold, many individuals have been eyeing to start a financial venture in the industry. Because of this high demand and virtually no supply, scammers and fraud dealers are rampant. There are also many pitfalls that newbies in the gold investment scene fail to avoid.
Knowing which things to avoid and what moves to make are the general rule of thumb. Forgetting these things can lead to unsavory situations.
A Fool’s Gold
There is a term that you need to learn when dealing with gold coins – numismatic. A numismatic coin is a coin that is worth more than the amount of gold that is present in the item. This is because a numismatic coin has some kind of historic or cultural significance. Don’t confuse these types of gold coins with gold bullion – they are two very different things.
Investing in numismatic gold coins is not very advisable for beginners in the investment game. Because you technically pay for a numismatic premium, these types of coins are actually akin to rare baseball cards rather than ‘legitimate investment assets.’
According to Peter Schiff, numismatic coins are a “fool’s gold.” “If you are buying numismatic coins, chances are you’re making a fast-talking salesman very rich at your expense,” Schiff said. Numismatics are only profitable for the seller, and not the buyer. So think twice about buying these glittery pieces.
You might not be the most intelligent person in the world, but it doesn’t take a rocket scientist to realize that cheap looking banner ads and pop-ups in the internet spells only trouble. These companies that pay for such low budget advertisements are usually the shady ones whose goal is to gather as much information from you as they can.
If an unknowing internet user agrees to a seemingly innocent ‘mailing list’ for ‘gold news updates’, chances are, he’ll be talking to an equally shady broker who will try to sell you numismatics six ways to Sunday.
“If you don’t know your gold, silver or platinum coins, you’d better know your coin dealer to help you make responsible decisions,” said PNG (Professional Numismatics Guild) President Jeffrey Bernberg. Only deal business with a trustworthy broker.
Certificates and Gold Pooling
Having a certificate is an alternative to owning the physical bullion. Although a lot lighter and doesn’t take as much safe space, certificates have one minor drawback.
See, when you sign a deal to participate in a gold pool, you are instantly a creditor of the banking institution or bullion house. It also means that your deposited finances are not special; it is part of the rest of the creditors and depositors. Once that institution goes haywire and bankrupt, the bank is legally allowed to sell your share to keep itself afloat.
In that instance, you technically don’t get zilch. You will be paid back, but not in gold, but in the currency. And for sure, you will be getting a lower value than your gold’s worth since if the bank went bankrupt, it will be selling its assets at the most attractive price (dirt cheap). Another terrible legal loophole is that gold won’t be covered by government insurance since it only applies to currency.