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Buying Gold, or Starting a Hobby?
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(May 3, 2009) September of 2008 began a genuine gold rush as many private citizens and money managers have chosen the traditional refuge in times of political, economic, and fiscal uncertainty – the purchase and custody of gold in tradable bullion forms.
Unfortunately, many people new to this field are missing the boat, having been dissuaded from this logical choice by numismatic coin marketers, who thrive when new and relatively unsophisticated buyers come into the market for bullion. Such newbies are always ripe for being talked out of their instinctive first choice and sold instead the “magic beans” which are numismatic coins.

The quest for gold during periods of uncertainty is natural. Who doesn’t want gold when the stock market, banks, and even the world fiat currencies themselves seem so vulnerable? For thousands of years, whenever what passes for money becomes debased by government fiat, then the actual money of value - gold and silver - go into deep hiding. The more the currency is degraded, the more people will pay for the protection afforded by direct ownership of precious metals. In fact, the price of these metals, expressed in fiat currency, is a direct measure of the market’s faith in that currency.

Take gold, for instance. As recently as the year 2001, gold traded as low as $256, and faith in the dollar was high. In March of 2008, gold traded at four times that rate when it went over the $1,000 mark for the first time. Obviously, the perception of the value of a dollar underwent a dramatic recalculation in the eyes of the world gold market.

And that quadrupling of the gold price occurred before our Recent Economic Unpleasantness, an event that has caused a lot of people with money to reassess exactly what they should be doing to protect their assets. Since September 2008, demand for physical precious metals, in the US and Europe particularly, has increased some eight- fold.

In Europe, where gold has been a part of the monetary culture for hundreds of years, one simply walks into one of the larger banks to purchase gold bullion bars and coins. Today’s citizen of Europe wanting to to trade out of Euro, pounds, or Swiss Francs, can acquire gold, easily and routinely, often by dealing with the same bank that his or her grandparents did.

Unfortunately, in the US we do not have the convenience of such an established and trustworthy retail structure for purchasing gold. Therefore Americans are more or less on their own when they’re looking for the shiny yellow stuff at a decent price. Some may be lucky enough to find a well-stocked local coin and bullion store, but outside of the largest cities, most often what is found are mom-and- pop shops of limited inventory and inconsistent pricing.

So, while searching for gold bullion, through the Internet, or print ads bearing enticing come-ons and toll-free numbers, the average gold- seeker in the USA will immediately encounter salespeople who have their own agenda – that is, selling you the high-priced collectors’ items known as numismatic coins.

But why, you might ask? I’m not a numismatist - I only heard the word for the first time last week, and I can’t even pronounce it correctly. Why is it that every big gold dealer whose number I dial, wants to make me into a coin collector?

Why numismatic coins? For the same reason that early 20th century bank-robber Willie Sutton gave when asked the question, Why do you rob banks? “Because that’s where the money is.”

The money we’re talking about here, of course, is yours. You and countless other Americans with a budget to spend on precious metals, have been and will continue to be showered with ‘opportunities’ to purchase these antique collectors items at markups anywhere from 30% to 200% or even much more over their actual precious metal value.

To these marketing firms, you are the perfect target for the numismatic hustle. You have expressed an interest in gold, which means you have money. You are probably concerned with privacy and secrecy about buying gold, so you are likely to react favorably to a sales pitch that stresses those points. You are probably not completely conversant with laws concerning private ownership of precious metals, so a few hints or suggestions from a salesperson may be all that you’re ever going to learn before parting with your cash for something made out of gold or silver. And you probably assume that coin purveyors, like stockbrokers, registered financial advisors, and bank officers, are subject to ethical and transactional regulations that ensure that you as an investors will be treated ethically and truthfully.

So when someone from a national firm in the precious metals field tells you something, you assume that he or she is has an obligation to tell you the truth. Unfortunately, sometimes what you get is a half-truth, and all too often, not even that much.

The real truth: Many firms posing as bullion dealers are actually fronts for numismatic sales marketing teams, and a danger to your wallet. Their sales weapon is fear: fear of confiscation, taxation, registration, and reporting of your activities to federal agencies. Inevitably, whenever high-pressure sales tactics are used, truth get thrown out the window!

Next week we will publish an article listing some of the more egregious baloney and tall tales put out by those who market ‘collector coins’ to people who contacted them simply to buy gold bullion.

Coming May 11: Oh, the Whoppers You Will Hear!

 

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