How to Spot a Gold Coin Scam

Brian Hicks

Written By Brian Hicks

Posted November 1, 2013

Fiat money (government-backed money) can be traced all the way to 10th century China, when the nation developed Jiaozi. These notes were redeemable for gold and silver, but there were times throughout Chinese history when money ran into circulation without intrinsic value to back it up.

Today, we’re experiencing the same problems that ancient China ran into when it came to valueless paper money: inflation and higher taxes.

gold-coins_wdsiteFewer people have faith in fiat money nowadays, which is why you’re seeing a rush for tangible metals such as gold and silver as safe investments.

The Chinese may be the founders of fiat money, but gold and silver always had a prominent place in the Middle Kingdom, and this is still true today. China is one of the heaviest consumers of gold reserves in the world. Only in modern times has paper money gone into mass circulation without being backed by a precious commodity.

Gold has always been a strong backbone and safeguard against the instability of fiat money, and gold coins have gained prominence among investors – particularly those looking to hedge against fiat currency. But there are scam artists out there eager make gains from unsuspecting gold buyers.

Bad Signs

There ways of spotting these con-artists.

The first thing you want to look out for is transparency. A good dealer should have no problem having his or her coins checked out by a third party dealer – a dealer of your choosing. It is all too easy for dealers to simply lie about the grade of the coin.

For instance, an MS-70 is considered cream of the crop, priced at $2,850. An MS-63 is worth $1,915, but if a buyer is unaware of the difference, a dishonest seller can market cheaper coins at a higher value.

That is why it is so crucial to get a trustworthy third party appraiser to examine all coins before purchase. Coins should be available to you and your appraiser whenever requested.

If you are able to go to the location and view the coins, a good rule of thumb is to see and feel your coins before making any purchase decisions.

There should also be no smoke-and-mirror tactics, like keeping coins hidden behind plaques and glasses for showy display. Any dealer should allow you to examine the gold coins for yourself.

One of the easiest things for a scam artist to do is convince gold investors that their investments would be safe somewhere else. They’ll try to scare you into believing the gold you’re purchasing is not safe in your home and would be safer in escrow. The thing is, these scammers will charge you additional storage fees for the gold – if the gold coins even exist in the first place.

Another scam that gets buyers is the numismatics scam. Numismatic coins are coins that are priced beyond value due to historical background. Scammers will often label coins manufactured before 1933 as numismatics in response to Executive Order 6102 under Franklin Roosevelt – a law which banned gold owners from hoarding gold to stave off deflation and bring so-called stability to the fiat market.

As of result of this law, a prevailing myth is that coins made before 1933 were not declarable to Uncle Sam, and this is where buyers tend to pay extra for pre-1933 coins when it is completely unwarranted. Beware of sellers marketing “non-confiscatable” or “non-reportable” gold coins, GoldSilver reports.

Unless you are an expert in numismatics coins, you should be very cautious or stay away at all costs.

Golden Path

So what’s the correct course of action to take when investing in gold?

If you prefer the indirect route, try gold bullion ETFs. ETFs essentially trade as stocks and are a good form of liquidity. In this case, you would be investing in the trust and namesake behind gold rather than the commodity itself. ETFs have strict oversight from the SEC.

Investing in a mining company is also a form of indirect purchasing, but always be aware of what type of company you’re getting into. You want companies with good safety track records, and beware of scam artists overseas who overstate the values of their mines.

Also be sure to get confirmation of a physical location. Singapore is one of the best places in the world to invest in gold due to its lucrative tax policies for overseas investors, especially on gold.

Gold mutual funds are another good way to invest in gold because of the diversification involved. This way, you can hold stakes in both gold coins and stocks. And you would get the same oversight as you would with ETFs.

When it comes to gold coins, your best tactic is to educate yourself about gold coins and the market to catch scam artists in lies and deception. Physical gold can be a great investment as long as you’re careful.

It will be hard getting away from the reaches of unstable fiat currency, but it is worth a try.


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