Gold scams have always existed. For as long as there has been money there have been people who set out to take it by any means necessary.
According to Merriam Webster, a scam can be defined simply as “a dishonest way to make money be deceiving people”. This applies as as much to phasing emails as it does to counterfeit products, and where gold is concerned, scams are rife.
After all, this is an industry that moves billions of dollars, an industry where even those investing in small amounts are still spending a considerable sum of money. Thousands of years ago scammers would create bars and coins from lesser metals, before trying to pass these off as the real deal. These scams flourished because we didn’t have the technology to detect them. That changed in the middle of the 19th century when Gideon B. Smith patented the first fake gold coin detector, a device that made life considerably easier for traders, who, until that point, had employed basic detection methods that only worked on the most basic of counterfeit coins.
These days, technology has made detection even easier, but it has also lent a helping hand to the scammers. There are many ways that the scammers can get one over on you, methods that continue to feed the criminal coffers year after year. But making sure that you don’t fall victim to these is just a case of staying on top of the fake gold scams, being well informed and vigilant at all times.
So, to ensure you are never the victim, here are the most common fake gold scams on the market and the ways that you can avoid them:
Fake Gold Scams: Overpricing
One of the most common fake gold scams is committed by high-street dealers looking to take advantage of customer naivety. They rely on the fact that you may not have access to up to the minute market information, that you may not understand spot price or the value of a particular metal. This is especially true with numismatics, when new investors may not have a firm grasp of the market and are more likely to be taken in by exaggerations on behalf of the dealer.
To convince you to pay these prices they may also tell you that there is a gold shortage. This is common during times of economic distress, when the demand does increase, but never enough to cause an actual “shortage”. After all, most of the time you’re just buying from another investor’s supply and when there is a mere suggestion of a shortage, then there is a glut of investors looking to sell and to boost the supply chain.
Overpricing is also very common on auction sites. These dealers need to offset eBay fees and PayPal fees while still making enough of a profit to justify their business. As a result, you will not find any precious metals for spot price on eBay. If you do, be wary, because some dealers try to lure in members with low priced bullion, only to charge extortionate shipping fees.
Always do your research, always understand the value of what you are buying and always shop around. Never, under any circumstances, should you commit to a substantial purchase based on what one dealer or one advertisement is saying.
Fake Gold Scams: Gold Plated
To the uninformed, the word “Gold-Plating” might drum up images of a tangible layer of gold covering a less valuable metal. But the truth is that the “plating” is more akin to a very thin layer of paint than anything else, and there is very little value in it. Of course, you are not being duped by such a statement and while the ones advertising gold-plated jewelry tend to play on these misconceptions, they are not breaking the law by doing so.
However, there is an alternative method that certainly is breaking the law, and one that has potentially far reaching consequences for all gold investors. In 2012 there were reports of an investor who purchased a substantial gold bar and was suspicious about its contents. He decided to drill into it, and upon doing so he discovered that it was filled with tungsten. This is a very cheap metal, but one that has a simile weight and dentist to gold. Tungsten is a cheap metal, and a bar of tungsten could never pass for a bar of gold, but because this particular bar only had tungsten at its core, and was coated with a thick layer of gold, the only way for a common investor to discover its true composition would be to drill into it.
Because to its gold exterior this bar would have easily passed many common tests, and it even carried a legitimate serial number, taken from the original bar.
The origin of this bar, the fact that it was purchased from an apparently reputable dealer, and the random way in which its true nature was discovered led many to wonder if more fake gold bars like this were in existence. Some even suggested that the Federal Reserve could be sitting on a stockpile of them.
The truth is that we will probably never know. But, on the good side, this is an incredibly difficult scam to pull off. Not only does the scammer need to buy a large amount of genuine gold, but they also need to spend a lot of time and money to go through with the conversions.
This bar was purchased from a local dealer. Which means that by the time it made it in the owner’s possession, it had already passed through a few hands. If this is something you are worried about (the likelihood of this being a common scam is very slim) then you should make sure that you only buy Good Delivery bars and that they come direct from major supplies, as they purchase direct from the refineries.
Fool’s Gold / Fake Gold
In 2010 it was reported, by the Managing Director of Emirates Gold, that many citizens of the UAE were trying to bring large quantities of gold into the country from overseas. They had purchased it cheap from dubious companies and were hoping to sell it on for a profit. But it turned out that none of the gold was real and what they bought was overpriced base metals.
Many of these scam companies were based in Africa and not only do they sill exist, but they flourish. They prey on people’s greed, promising to sell them freshly mined, refined or minted gold at a discount. They often claim that because of local rules and regulations they are unable to sell it themselves. This is the precious metal equivalent of the Nigerian 419 scam, whereby so-called princes or kings claim to have a sizable wealth that they are unable to access, before promising to share this with randomly contacted recipients in exchange for an advanced fee.
In this day and age it seems ridiculous to suggest that people still fall for these scams. But they do and because of greed and desperation, they will continue to fall for them. To avoid these gold scams you just need to avoid buying from anyone who promises something that sounds too good to be true. If they are offering you gold at less than spot price, even though there are thousands of companies out there that would pay them spot price for that gold, then you have to question their validity.