Before Bear Stearns and Lehman collapsed, the market for physical gold was limited to a relatively small group of investors who understood the havoc inflation was wreaking on our savings and the US markets. As the financial crisis took hold, a flood of new and inexperienced buyers entered the market, creating an opportunity for unscrupulous metals dealers to swindle their way to massive profits. This is what drove me to launch my very own gold dealer, Euro Pacific Precious Metals, to provide a safe alternative for those who were taking my advice to diversify into sound money. In our first year of business, I released Classic Gold Scams and How to Avoid Getting Ripped Off, a free report that has saved countless investors from losing their shirts.
Fast forward several years and the markets look like a film on repeat. We are once again building toward a massive financial crisis - one that will make 2008 seem like the good old days. Unfortunately, the majority of investors are once again playing the US markets and shunning gold. I encourage my readers to consider diversifying into precious metals now, while the market is still distracted. To this end, and in preparation for the inevitable mad rush when conventional investors again flock to safety, I have updated and re-released my Classic Gold Scams report to help newcomers learn how to buy gold and silver the right way.
The majority of precious metals scams revolve around a core tactic: the bait-and-switch.
First, the company lures you in with the promise of a good deal on a product you're genuinely interested in buying. Once they have you on the line, a fast-talking broker will try to convince you that a different product is a better match for your needs. This new product into which they've "switched" you is almost always a rip-off.
In the precious metals world, this usually involves an over-priced numismatic or "collectible" coin. The salesman will explain that the unique qualities of this coin make it even more valuable than its metal content. "Why just buy gold, when you could buy a piece of history?" Or so the argument goes.
The entire bait-and-switch technique is designed to confuse you. The dealer preys on your insecurities by making you feel like you don't have enough knowledge to make a choice for yourself.
Keep Gold Simple
Let me share a secret that these scammers don't want you to know: gold is gold is gold.
The majority of savvy investors like you and I are buying gold and silver as a hedge against inflation and the collapse of the US dollar. It doesn't matter what form our gold takes, as long as it is pure, easily recognized, and authentic.
Sure, there may be rare, historic coins for which well-educated collectors will pay good money. But you need a firm understanding of these coins' unique traits to correctly assess their value. Without this understanding, it is virtually impossible to select the proper coins to add to your collection or get a fair price when it is time to sell. For most of us, such coins are way beyond our expertise and carry far too much risk.
All we need to protect our wealth is pure gold bullion. Fortunately, the market for bullion is very simple and easy to understand. A complete list of common gold products is included in the Classic Gold Scams report.
That's the only secret to beating the bait-and-switch scammers: know exactly which product you're interested in buying ahead of time - and stick to your guns.
The Price Protection Racket
When gold started falling from its highs in 2011, an old-time scam re-emerged: the price protection racket. This tactic is extremely popular with some of the largest gold dealers out there.
In this scam, the dealer guarantees that if the price of gold falls within a certain timeframe, the investor can buy at the lower price. Usually the price protection lasts for about a week after placing your order.
On the surface, price protection sounds great. Who wouldn't want to be able to avoid short-term market fluctuations when buying precious metals?
Of course, there's a catch. These price protection programs rarely apply to the common bullion coins that carry the lowest premiums. Invariably, these schemes are only applied to overpriced numismatics or collectors' edition coins. That's the only way dealers can afford to offer such a sweet deal. The margins are already huge on collectors' coins, so allowing buyers to adjust their purchase price has a negligible effect on the dealer's bottom line.
What's more, the price protection program often includes an additional fee on top of the purchase price. This builds in an additional cushion to make sure the dealer always comes out ahead.
At the end of the day, price protection is just a scare tactic aimed at investors too concerned with short-term volatility. This fear actually reveals that they're buying gold for all the wrong reasons.
Buy Gold for Gold
The right reason for most investors to buy gold is as a long-term hedge against inflation and financial instability.
Gold is humanity's oldest form of money and wealth preservation. A hundred years ago, a gold coin could buy you a custom tailored suit. The same is true today. The purchasing power of gold remains relatively constant over the long-term.
On the other hand, fiat money has historically always failed. The US dollar has not been backed by gold since 1971, which means it has lasted more than four decades as a purely fiat currency. The history of great empires suggests that its time is almost up.
Each of the Federal Reserve's announcements of another program of money-printing brings that crash - which I have termed the "Real Crash" - closer to fruition.
Remember, if the US economy were really recovering, the Fed's manipulative policies would not be necessary. Also, gold wouldn't be seeing the dramatic recovery it has thus far enjoyed in 2014. It's up 13% since its December lows!
There's Still Time
If you missed out on the great gold rush of the '00s, don't let the next opportunity pass you by. I believe gold's bull market has a long way to run, and now is a great time to establish holdings or add to existing holdings.
But be aware that for most investors, the physical gold market is completely new and foreign. That has created an environment in which unscrupulous dealers are thriving. Before you buy, read my recently updated Classic Gold Scams report to learn how to tell a deal from a swindle. There is no need to learn these lessons the hard way, or to let fear of the unknown keep you from safeguarding your family's savings for future generations.
Peter Schiff is Chairman ofEuro Pacific Precious Metals, a gold and silver dealer selling reputable, well-known bullion coins and bars at competitive prices.
Click here for a free subscription to Peter Schiff's Gold Letter, a monthly newsletter featuring the latest gold and silver market analysis from Peter Schiff, Casey Research, and other leading experts.
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