Gold IRA scams are unfortunately common in the financial industry, preying on individuals looking to invest in precious metals for their retirement savings. These scams typically involve unscrupulous companies or individuals promising high returns and low risks with gold IRAs, but then failing to deliver on these promises. Continue reading to learn which gold IRA scams to watch out for.
Beware of Gold and Silver IRA Schemes
Gold investments are popular thanks to their many benefits, such as diversification, a sustainable store of value and a hedge against inflation. Unfortunately, the popularity of gold investments has also encouraged gold IRA scams.
Everyone needs to be alert because scammers are everywhere, and you never know when you can fall prey to their schemes. The best way to avoid this retirement fraud is to stay up to date on some of their tactics, explained below.
Bullion, Coins and IRAs
Investors can buy two kinds of physical metals — bullion and collectible coins. Bullions are bars or coins with a certain purity and weight. Collectible coins, on the other hand, are old or rare coins.
A spot price represents the price at which an asset, such as a currency, security or commodity, can be sold or bought immediately. Bullion prices might include a markup of 5% to 10% on spot prices in the market. Unfortunately, some dealers might entice unsuspecting customers to purchase collectible coins at a cost between 40% to 200% above the spot market price. These dealers try to convince the buyers that these coins will only increase in value because they’re rare.
Meanwhile, collectible coins do not have a liquid market because they are hard to value. Once the buyer realizes that it’s difficult to sell their collectible coins, they return to the dealer, who in turn buys back the coin at a price much lower than the initial selling price.
IRAs can only store certain bullion coins, such as silver, gold, platinum and palladium coins, and some scammers try to increase their profits by inflating the monthly or one-time fees. As a result, customers have often lost a large portion of their investments to these fees.
Leveraged Accounts
A dealer might reach out to you advising that metal prices will soon skyrocket, claiming it is a rare chance to make a fortune even with a small investment.
Dealers might ask you to pay about 20% to 25% of the cost while their company finances the rest. Essentially, you’re borrowing to take the position (adding leverage), which can magnify gains or losses. Meanwhile, these deals involve high-interest charges and speculations that will likely make you lose your money.
In reality, gold prices are volatile, and once the value drops below a certain level, the company can ask you to deposit more money to avert possible losses. In other cases, like an insufficient balance, your account could be closed, and all funds could be lost.
Scams like this can be difficult to sniff out, so you should be careful. Once you notice that someone’s trying to pressure you to invest in gold or making unrealistically optimistic predictions, there’s a high chance that they’re scammers.
Also, if you want to use leveraged accounts, confirm that the entity (person or firm) is registered with the Commodity Futures Trading Commission (CFTC). If it isn’t, avoid using that firm.
Compare Premiums and Fees
Whenever you want to invest in gold, you should compare the price that the IRA firm is offering with the price of gold in the market. While the price of gold can be volatile, you shouldn’t pay for something that’s significantly lower or higher than the spot price.
Legitimate dealers will add a profit margin to the spot price because they need to make a profit from the service they’re rendering. However, these additional fees still need to be reasonable.
Overall, compare prices and do the research to confirm that you aren’t playing into the hands of scammers.
Signs of a Possible Fraudulent Sales Pitch
Scammers use fraudulent sales tactics to deceive unsuspecting investors. Here are some sales pitches you might come across.
- Rare Coin Valuation: Some scammers use emails to inform naïve or inexperienced investors that they have a rare coin they want to sell for thousands of dollars. They can also include pictures and request wire transfer payments. Once you transfer the money, they disappear, leaving you with no means to get your money back.
- Bait and Switch: You might receive an ad or an email about a deal that sounds too good to be true, like selling gold at a ridiculously low price. Once you start responding to the mail, the fraudsters try to get you to buy something different.
- Free Gold Scam: Fraudulent dealers can contact you, offering to create a gold IRA and promising you some gold to set you up. Some will promise you a guaranteed return on investment. However, once you invest, they run away with your money.
Possible Persuasion Tactics You May Experience
Some fraudsters can include buzz phrases in their sales pitches. If a dealer includes any of these words or phrases, chances are they are about to scam you.
- Guarantees: Scammers tend to guarantee a specific return on investment (ROI), and some might claim that the investment is risk-free. They say this knowing full well that there’s no risk-free investment.
- Few or Limited Coins: Some fraudsters can also try to scam you by announcing that there are only a few coins left, and you have to seize the opportunity before it gets too late.
- Once-in-a-lifetime Opportunity: Another common phrase you’ll hear among scammers is that the gold prices will skyrocket, and you only have a once-in-a-lifetime opportunity to make it big.
Find Trustworthy Gold IRA Firms
One of the safest ways to avoid gold IRA scams is to stick with reputable gold IRA firms. These companies usually help you set up your IRA and buy bullion or gold coins. You need to consider some factors before settling for a gold investment firm.
- Credibility: A legitimate gold IRA firm will have positive reviews on independent third-party sites, as well as verified review sites like TrustLink, Trustpilot and Business Consumer Alliance.
- Experience: The more experienced a company is, the higher the probability it has a strong reputation for upkeep.
- Custodian: You should not invest in a gold IRA firm without confirming that it has an IRS-approved custodian. This custodian is a financial firm that performs administrative duties and investment activities for the IRA in order to keep it tax-deferred by the IRS.
Frequently Asked Questions
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By staying informed, conducting thorough research, and working with trustworthy professionals, you can safeguard yourself against gold IRA scams and make informed investment choices for your financial future.
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One of the key red flags to look out for is promises of high, guaranteed returns with little to no risk. Additionally, be cautious of companies that pressure you to make quick investment decisions or use aggressive sales tactics to push their products. Another warning sign of a gold investing scam is lack of transparency and unclear communication.
