The Dangers of Buying Gold

Advertisements promoting gold dominate the airwaves, touting gold as the ultimate investment, the place to be in these times of financial and economic uncertainty. Will the respondents enjoy the benefits that the ads promise? Probably not.

Most of the firms sponsoring the ads promote gold coins at grossly inflated prices, as much as 30%, 50% even 100%. How do these firms convince investors to buy at such inflated prices when the normal markup on gold bullion coins is 2% to 7%, depending on the coins and the quantities? Several factors come into play.

First, the ads are based on fear, and the telemarketers reinforce that fear by talking about alarming topics that dominate the news, such as the declining dollar, the burgeoning national debt and massive deficit spending. The possibility of war with Iran is often used to scare callers.

By focusing on scary topics, the telemarketers get callers to react emotionally, instead of logically. A commonly used frightful topic is confiscation.

In 1933, in the midst of the Great Depression, by executive order President Roosevelt made it illegal for Americans to own gold bullion or gold bullion coins. The order stood until December 31, 1974.

After instilling the fear of loss, the telemarketers introduce the notion of “non-confiscatable” gold coins, usually old U.S. gold coins and modern U.S. proof gold coins. The telemarketers assert that these coins are “non-confiscatable” because Roosevelt’s 1933 executive order exempted “gold coins having a recognized special value to collectors of rare and unusual coins.”

However, the telemarketers fail to mention that the executive order did not define “special value,” “collector” or “rare and unusual coins.”

Some promoters go as far as to say that old U.S. gold coins, the most frequently touted coins, are “not confiscatable by law.” The issue of the government confiscating gold is not addressed in U.S. law, but that does not stop some telemarketers from asserting such.

Buying gold has long been an accepted move during periods of uncertainty, but it is not a prudent move if you buy at highly inflated prices. Sadly, people who respond to today’s radio and television ads that hawk gold are likely to pay way too much for their gold.

Investors wanting to buy gold would be much better off if they went with basic bullion products, such as American Gold Eagles, Krugerrands or gold bullion bars, of which several sizes are available. These products can be purchased at 2% to 5% over the value of their gold content, depending on product and the quantity. Gold bullion bars usually carry smaller premiums than gold coins.

At first glance, buying gold may seem a simple, straight forward process. However, there are dangers, such as falling for a telemarketer’s line that his coins are “non-confiscatable” and somehow have more value because you bought them from him. Basic bullion is the way to go when investing in gold.

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