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How to Spot a Gold Scam

By: Peter Cooper, Arabian Money

-- Posted Tuesday, 12 May 2009 | Digg This ArticleDigg It! | | Source:

Bernie Madoff’s hedge fund operation turned out to be a $65 billion fraud, and while the current boom in interest in precious metals might not produce a scam on that scale investors from the Middle East should take care.


The most important thing in any investment is to take a good hard look at who you are trusting with your money. Indeed, that is the great advantage of holding gold, for actually you do not need to trust anybody at all. What you see is what you have.


Life is seldom that simple, however. Are you going to sit and watch your gold on a constant basis, and never leave it unattended? No you will want to hide or store it somewhere.


Digging for gold


In some countries gold hoarders like to bury their gold in the garden. But in Dubai we have entire regiments of Pakistani gardeners who would doubtless be only to keen to handover any gold they dug up.


That of course means that you are back in the hands of third parties, like a bank with a vault. Be a little careful again. Is this an institution with a serious reputation to protect in a stable jurisdiction, or will the vault spring open the moment you leave?


Even buying coins or bullion opens up the possibility of massive spreads against the spot price which may not be available when the gold is sold. And can you be sure that what you are buying is gold? Again a reputed, preferably government mint is advisable, but then forgeries are not unknown.


Due diligence


Buying gold that is held on your behalf in vaults against some form of certification is also to be treated with caution. Who is this third party? Do they have a government guarantee, or better still are they a government institution in a stable jurisdiction?


You then have to consider whether to take allocated or unallocated gold, that is to say numbered bars owned by you or the promise of gold actually held by a third party. Again this depends on the amount of trust you can place on the third party, although unallocated gold usually carries no storage costs, and is therefore the most efficient investment vehicle.


Exchange traded funds have become popular as vehicles for investment in gold, and the most popular ETF now holds more gold than China, so the fund is liquid enough to handle any person’s investment requirement. But the spread on ETFs is still not as efficient as unallocated gold in a government mint.


Indeed, given that most investors are looking just to benefit from the rising value of gold these last two vehicles offer both efficiency and almost complete security against fraud.


This article does not name names because that would be unfair to possibly genuine business interests and potentially open us to charges of libel. But caveat emptor, let the buyer beware. Every investment boom has its scams.

-- Posted Tuesday, 12 May 2009 | Digg This Article | Source:

About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group.

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in, which later became the Middle East's leading English language business news website.

Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.

He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.

Order my book online from this link


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