Why You Should Exercise Caution When Buying Bullion

buying bullion
by: Ben Tseytlin - on Gold & Bullion

Purchasing precious metals today has been described like the Old West. There is very little regulation, which many liberty minded folks like because buying bullion gives them flexibility and privacy. However, unscrupulous dealers and their underhanded practices ruin things for everyone, since they cost consumers millions and give the government an excuse to intervene.

Unethical Tactics Used By Some Bullion Dealers

Some bullion dealers intentionally offer their clients the most inappropriate and expensive forms of silver and gold, and then claim to keep it in storage without the client accepting delivery for an extended period of time. Some dealers take it a step further, presenting their clients with the chance to leverage purchases via complex loan or margin agreements. Eventually, the client will lose their money on a purchase because they didn’t take physical delivery while they had the chance.

The reason the government hasn’t gotten involved in most cases is because the sales tactics being used don’t yet resemble securities trading. However, if you don’t hold precious metals in your physical possession, you don’t own them. The only exception to this is if you have them stored in a depository that is approved such as those in places like the Cayman Islands. Unethical firms will often use telemarketers to promote their products. These individuals promise a great deal, but in most instances those that buy from them will end up losing a tremendous amount of money.

How To Avoid Becoming A Victim

The best solution is not greater government oversight, but greater awareness on the part of the consumer. Conduct extensive research on the dealer you intend to buy bullion from. Find out how long they’ve been in operation. Learn their business procedures and methods. If they employ a telemarketing team that doesn’t own a single ounce of silver or gold, this should be a red flag. Ascertain their reputation. If they don’t have an address in Google Maps, or a positive rating on the BBB (Better Business Bureau) website, then they cannot be trusted, period. As far a television advertising goes, the promotions you see on TV are paid for by the viewer, so beware when buying bullion.

The government has begun taking actions against some. For instance, the CFTC charged the Monex Deposit Company and related affiliates in a multimillion dollar scheme to defraud their customers. Essentially, the defendants used deceptive tactics which lead to retail customers losing hundreds of millions due to non-legal, off exchange precious metals that were leveraged in various transactions.

As precious metals enter another bull market, cases like the Monex scandal will continue to be a problem. Whether you’re a collector or investor in gold and silver, it is important to perform your due diligence and ensure that the company you’re dealing with is legitimate. Although the Monex case has been resolved, many of the victims will never get their money back so preventing these problems is the best course of action.