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Four Things to Check before Buying Gold or Silver

This article is a follow up piece another article called The Two Big Risks of Owning Precious Metals.  Unfortunately there are other ‘gotchas’ that you need to be wary of. So take note and think about where you buy and store you precious metals

1.    Capital controls.

Capital Controls basically means the government restricts the movement of capital. There is a steady advance all over the world to regulate the sale and transport of precious metals: an endless host of laws to comply with, and forms to fill will become the norm.

For example, there is a requirement for Americans to report their foreign bank accounts (including any gold accounts held overseas).  This is known as the Report of Foreign Bank and Financial Accounts, or FBAR.

There is also the Foreign Account Tax Compliance Act (FACTA), and the Voluntary Offshore Disclosure Initiative.  Its enough to make your head spin!  The penalties can get crazy, and you need guidance to avoid breaking the law.  Going into details on these reporting requirements is beyond the scope of this article.

In 2006, the United States Treasury placed capital controls on nickels and pennies by implementing regulations to limit the exportation, melting, or treatment of one-cent (penny) and 5-cent (nickel) United States coins, to “safeguard against a potential shortage of these coins in circulation.”

Prevailing prices of copper, nickel and zinc have caused the production costs of pennies and nickels to significantly exceed their respective face values.  The regulations authorize a fine of not more than $10,000, or imprisonment of not more than five years, or both, against a person who knowingly violates the regulations. In addition, by law, any coins exported, melted, or treated in violation of the regulation shall be forfeited to the United States Government.

We can only expect more of these types of capital controls as the debt continues to increase.  So, the sooner you act, the fewer hurdles there will be, and the better off you are.  Check with your local authorities for what is required, and always suggests complying with local laws. (especially before they get worse).  We also suggest getting active in politics to stop these draconian laws being passed in the first place.

2.    Actual Ownership of Precious Metals.

For example: Are you the part owner of a fund that owns precious metals?  Or are you the owner of the precious metals themselves?

If you are the owner of a fund, and that fund goes bankrupt for any reason, then you own stock in a bankrupt fund.  Not a good place to be. If you own the metal, and the storage facility goes bankrupt, you should get your metal back. The question is whose balance sheet is the metal on? Yours or theirs?

Now, there are some very reputable companies that hold actual gold for you.  We work with them all of the time, and have successfully shepherded many of our members through this process.  There are also some very dangerous investments that can lead to you thinking you have real precious metals, while you really don’t.  (More on that below…)

3.    Leverage and Fraud.

It is well documented that the bullion banks, and Electronically Traded Funds “lease” or sell their gold many times over.

For example, for each ounce of gold they have in stock, they may sell 100 ounces. It is similar to fractional reserve banking. If the economy collapses and the price of precious metals goes sky high, these funds will have no chance at all to cover their obligations.

The risk is that you and 99 like you have to divide 100 ways the metal that you thought you owned exclusively.   It’s a really clever way to have 99% of your wealth stolen.

4.    Forgeries.

Although not a major problem at the moment, it is certainly a possibility that there will be some coins floating around with fraudulent markings on them.  Recently in New York, 10 gold bars, worth approximately $180,000 retail value, were discovered to be counterfeit, and filled with tungsten instead of gold.

Another common scam is pawning something off as 99% pure, when they are in fact only 90% pure. Fortunately both gold and silver have very unique densities are quite hard to forge in this way. Still, as precious metals become more and more popular, this trend will likely increase. Simple scales for $30 can be bought off of Ebay and other such sites to help you weigh the coins to insure they are genuine.