Buying Gold Without Getting Sold
Cliff Droke
Interest in owning physical gold bullion in numismatic or bullion form is running at a multi-year high. Coin collecting as a hobby has never been more popular, thanks in part to the state quarters program and the outreach efforts of several numismatic organizations. Each month brings interested new investors who want to hedge their portfolios with investment grade gold and silver coins.
Yet one of the most common questions asked by those new to gold and silver as an investment is how can they find a trusted coin dealer or retail seller who won't overcharge them or fail to deliver. Indeed, this is a crucial question that even experienced investors sometimes find themselves asking. The "waters" as they say, "are filled with sharks."
Probably the best investor's guide for prospective investors interested in buying gold coins as an investment is the booklet entitled "How to Buy Gold Without Getting Sold." Written by my friend Kevin Bear, who co-hosted the "Money Watch" talk radio show with me a few years ago. Kevin started his own gold coin and bullion business and wrote the investor's guide to aid his clients and prospective gold buyers. This guide book comes highly recommended before any gold coin purchase is made.
Kevin emphasizes the importance of dealing only with reputable firms when buying gold. He writes, "Solid, reliable firms do far more than just sell gold and silver. They should also provide outstanding service to earn your business. Find a company that shares your philosophies. A shared viewpoint on gold and the economy is a good clue that the company will understand your particular needs."
Kevin warns that the buyer should always be careful to avoid dealing with a company that focuses only on price. "These types of companies are usually staffed with low paid clerks who have little knowledge of gold or the markets. Look for a company that takes an interest in your long-term needs. Questions like: 'Why are you acquiring gold?' let you know that the broker's concern for your overall needs is more important than their commission."
"Beware of bargains" is another admonition of Kevin's. If you're like me you've probably had personal experience with this one. A few years ago my telephone answering machine was constantly filled with unsolicited messages from one particular numismatic firm (whose name I won't mention). This is usually a warning that the company is only after your money and isn't particularly concerned with serving your needs as an investor. I later discovered from conversations with others who had communications with said company that my friends were being advised to buy "buffalo nickels" at inflated values by this company when their original intention was to buy Gold Eagle coins. They had literally been talked out of buying gold in favor of more speculative coins!
I think Kevin probably says it best when he advises, "If a broker persists in trying to sell you something you do not understand, have not interest in, or simply don't want...HANG UP THE TELEPHONE! These types of companies are focused on only one thing: Separating you from your money!"
He further warns that if you are being offered gold and silver substantially below its true market value, or "under the market," it's probably a safe assumption that your "great deal" is overpriced, over-graded, or misrepresented in some way.
Another very important aspect when buying gold coins -- yet one that is easy to overlook -- is to check and compare pricing. This has never been easier to do with the availability of up-to-date bid prices on E-bay (a veritable bourse for coin values). "Some companies offer only a limited number of coins at the low price they advertise," writes Kevin. "They get you to call in order to gather personal information about you that they will later sell to other companies. Your name ends up on a "sucker list" that will keep your phone ringing and your mailbox full for years to come."
Also important to remember -- don't be afraid to ask questions of a broker. Here is a set of guidelines provided by Kevin:
- When is the price set? (Who sets it?)
- How long for delivery? (10 to 14 business days is the industry standard.)
- Has the company had any complaints filed with the Better Business Bureau? (You can check)
- What happens once your check is received? (How long do they hold your money?)
- How will they ship your order? (Are shipments insured?)
- Will they buy back your coins? (For how much?)
"Any hesitation in answering these common sense questions," says Kevin, "should serve as a warning that there may be a problem. Trust your instincts. Listen to your inner voice. Be especially wary of any broker who tries to dominate and control the phone conversation." Says Kevin, "Always remember the most important rule when buying gold and silver: You are in charge! A competent, reliable broker should be working for you. Fast-talking, high-pressure salespeople are a good sign that you haven't found the right company to do business with."
Kevin also cautions the prospective buyer to stay away from so-called "modern rarities." These are newly minted coins that are typically marketed through ads as semi-numismatic or private rarities. These coins often come in the form of a commemorative struck for specific events, or to honor a person or historical figure. They are usually packaged in attractive presentation cases and are accompanied by certificates of authenticity.
"While occasionally some of these do appreciate in value, most do not," writes Kevin. "Some in fact are not really coins at all, but simply tokens. If you like these types of modern rarities for their themes, or as souvenir items because of their beauty or design, by all means buy them. But if your goal is wealth preservation, or capital appreciation, avoid this type of investment or you may be left with nothing more than an expensive box and worthless certificate."
Finally, Kevin advises the buyer to watch out for "churning." This is a practice of some unscrupulous brokers who try to get you to "trade up" or "reposition" your circulated gold for high-grade or rare date coins. You will be promised that even though you're taking a "loss on paper" by trading up for these investment quality coins, you'll recoup the money you've lost. But as Kevin points out, this is simply a way of spinning you from one type of coin into another for the sole purpose of generating a commission.
"What most people don't know is that the broker charges you money for buying your circulated gold back, and makes money again on the sale of the ('reposition') replacement coins," writes Kevin. "Buyback bids will be low, and the premium on the high-grade, or rare date coins will be significant. You get stung twice."
Kevin advises that if you're dealing with an honest broker or company, the best common sense advice for your gold acquisition should be that your portfolio be balanced and diversified. "No one with any common sense would put all of his or her eggs in one basket," he writes. "The practice of 'churning' does nothing beneficial for the client."
By familiarizing yourself with these important guidelines for buying gold, you'll be better able to recognize when you're not getting the best deal from your broker or dealer. And more importantly, you'll be safe in the knowledge that you can buy gold "without getting sold."
April 9, 2005
Clif Droke is the editor of the daily Durban Deep/XAU Report, a technical forecast and overview of several leading gold stocks, including DRDGold available at www.clifdroke.com. He is also the author of more than 20 financial books, including most recently "Gold Stock Almanac 2005." To order this book click here: www.clifdroke.com/books/goldstockalmanac05.mgi
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