Recently by Peter Schiff: Whose Fuse Is Shorter?
Below is a summary of my 15-page special report, "Classic Gold Scams and How to Avoid Getting Ripped Off." If you’d like to learn more and receive a free download of the full report, go to www.goldscams.com.
I’ve always advocated that investors hold at least 5-10% of their portfolios in physical precious metals. With major Western nations now defaulting on their debts, more and more investors have decided it’s time to take my advice and own an asset that doesn’t depend on the solvency of an ETF, bank, or government.
Unfortunately, with all these news buyers in the gold market, there is ample opportunity for dishonest firms with big advertising budgets and celebrity endorsements to make a quick buck.
If you are thinking of buying gold or silver for investment, diversification, or asset protection reasons, this quick guide will help you avoid common scams and pitfalls.
The Numismatic Bait and Switch
The most important concept for new gold & silver investors to understand is the difference between bullion coins and numismatic coins.
- Bullion coins are those that derive their value almost entirely from their metal content.
- If a bullion gold coin is priced at $1800/oz, it’s because it contains close to $1800/oz worth of gold.
- Numismatic coins derive some or all of their value from being "rare" or "collectable."
- If a gold numismatic gold coin is priced at $3600/oz, it probably still contains only $1800 worth of gold, and the rest is a premium for the coin’s aesthetic qualities.
If you want to invest in precious metals, you want bullion coins or bars. If you want to build a coin collection for sentimental or historical purposes, you want numismatic coins. A buyer should always know which is which, and purchase accordingly.
The problem is that most coin dealers want to confuse you about this distinction.
Very few gold dealers make their living selling bullion coins. Instead, they bait you with bullion to get you on the phone, and then convince you in various ways to switch your purchase to numismatics – because their profit margin on these "rare" or "collectible" coins is vastly higher.
Just like buying an Armani suit is not an investment in wool, numismatics are not an investment in gold. Look what central banks and smart investors around the world purchase. Open their vaults and you will not find rare collectors’ pieces; instead, you’ll find bars of solid, bullion metal.
Unless you’re a very serious coin collector with specific knowledge of the numismatic world, stick with bullion coins like the American Gold Eagle, Canadian Maple Leaf, or Krugerrand.
The Confiscation Con
One of the main techniques a metals broker will use to "switch" you to numismatics is to talk about President Roosevelt’s "confiscation" of gold – and then claim that only their coins are exempt. This is baloney.
Peter Schiff is president of Euro Pacific Capital and author of The Little Book of Bull Moves in Bear Markets and Crash Proof: How to Profit from the Coming Economic Collapse. His latest book is How an Economy Grows and Why It Crashes.