Scammers are looking to capitalize on the surge in gold prices with new, more advanced scams than in years past. The yellow metal approached $1,690 an ounce this morning before pulling back following a big upside surprise in jobs data.
Gold scams on the rise
CNBC reports that as demand for gold rises, so scams involving the precious metal have been rising. Networks of scammers pose as real gold traders to try to trick investors. Fake products involving promises of gold investments have become more advanced, according to experts who spoke to CNBC.
Asset manager Sprott US Holding told CNBC that they’ve been hearing about more and more fraudulent approaches from their clients. The company’s CEO said gold scams always coincide when precious metals prices increase. Such situations also coincide with times when investors are more fearful of conventional investment products.
Types of gold scams
Articles promise hyperbolic upside in precious metals to generate interest in gold, silver and other precious metals. Investors who inquire as a result of those articles end up being cheated in a variety of ways. The gold scams can include “off-market products, excessive spreads, or simple swindles where the customer forwards money for goods that are never transferred or delivered,” Sprott US Holdings President and CEO Rick Rule said.
BullionVault Research Director Adrian Ash told CNBC that the last time the gold price soared as much as it has recently, numerous gold scams came to light. He said the most basic scheme involves claims that gold bullion coins are rare and then charging victims too much for them.
He said another common gold scam is called the “empty vault” scheme. Supposed dealer claims to offer safe storage for gold owned by the investor. However, the gold either doesn’t exist or isn’t as promoted. He noted that if someone is promising to store something for you, you have no way of knowing if it’s even there. Even if you go to inspect the gold, how do you know it doesn’t belong to other people?
To work around this scheme, companies issue daily public holdings data. The data lists investors under nicknames so they can see the gold they own that’s being held by the real company. Publishing data using nicknames protects investors’ privacy. BullionVault also uses independent reviewers to visit vaults and ensure that every bar of gold is exactly as it was described.
Mule rings and counterfeit gold
OneGold CEO Ken Lewis told CNBC about a scheme they described as a “mule” ring. The gold scam involved contacting people through dating sites or apps. The scammer would then ask them to buy gold and then forward it to them, claiming they needed the gold to help them get to the U.S. He estimated that this gold scam bilked hundreds of people out of $3 million to $5 million in total.
Experts also say scammers frequently offer fake gold and sell it lower than the market rate on online marketplaces. The counterfeit gold is becoming more and more advanced. If investors don’t have the gold tested properly, they may not even realize that it’s fake until they attempt to sell it later.
According to Lewis, the easiest way to tell whether gold is real is to look at its dimensions and weight. He noted that the metal is one of the densest elements on Earth. Thus, if the weight and dimensions of the gold match what the manufacturer’s specifications are, then it is likely authentic.
He also called attention to infomercials that convince investors to call in. Elderly or vulnerable investors often hear pitches for a significantly overpriced product. Such schemes also typically involve high pressure sales tactics and claims that they will see exponential growth in their investment.
How to avoid gold scams
Rule said many gold scams are executed through “trust-based” communications with their victims. Scammers may play on their victims’ conservative political views or religious views. Some gold scams target the investor’s desire to avoid paying taxes and reporting their holding, so anonymity is promised. Sometimes anonymous or offshore storage is offered, but such options do not actually exist.
The easiest way to avoid scammers is to work only with established, reputable firms. Investors can verify the licenses of the brokers they deal with via the Financial Industry Regulatory Authority‘s website.