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Fool’s Gold: Beware of ‘Rare’ Coins


As SmartMoney.com reported yesterday, many investors are buying gold, while others are moving back into equities. Given the popularity of the precious metal, some experts are warning consumers about unscrupulous retailers selling jewelry and vintage coins. The Maine Office of Securities recently cautioned consumers about scam artists. David Schraeder, spokesman for the World Gold Council in New York, says you can buy from the U.S. Mint, though you may pay a slight premium, and says the council’s site has a list of respected dealers.

Peter Schiff, CEO of brokerage firm Euro Pacific Capital in New York, who prefers to buy gold for his clients rather than equities, has just released a report, “Classic Gold Scams – & How to Avoid Getting Ripped Off.” It says more companies have sprung up in recent months offering ways to invest. The lesson: Don’t get carried away with the gold rush or aggressive salesmanship without knowing your French Rooster from your American Eagle.

Here are the Top 5 tips:

The Bait & Switch

Some companies may advertise gold bullion, but then switch the telephone sales pitch to coins, the report says. Not all gold coins have an “antique” value. “Just like buying an Armani suit is not an investment in wool,” Schiff says, “rare coins are not an investment in gold.” Schiff says rare coins can be hard to liquidate – unlike, say, bullion – and says buyers should not be bamboozled by charts showing how rare coins exceed bullion in value over time. Some do, but that does not apply to all vintage coins.

Don’t Buy A Turkey

The French Rooster, Swiss Helvetia and British Sovereign are not exactly rare, despite what some naïve consumers may believe. The American Gold Eagle and Canadian Gold Maple Leaf are among common gold bullions that that Schiff says are worth buying. The South African Krugerrand – the original “bullion” gold coin, launched in 1969 – now has 54 million units in circulation worldwide. Genuine rare coins rely on services like the American Coin Club Grading Service or Professional Coin Grading Service for validation.

How to Buy the Right Way

Gold lovers should not pay more than 6% above the spot price for gold bullion or 7%-8% for an American Gold Eagle, depending on supply and demand, and should ask the salesman certain questions: Are you clear about the product being offered? Do you understand the price and fees? Did you choose this dealer because it was endorsed by a celebrity? Is the company willing to buy the gold back and, if so, at what price? Schraeder says go online to compare prices. “There are many, many good businesses serving investors and collectors that can provide the coins and investments that you’re looking for,” he says.

The Gold Storage Scam

When a bank sells you gold but continues to hold it on account for you, the gold is typically known as unallocated. Beware. “This makes you a creditor, just like a cash depositor, but without Federal Deposit Insurance Corporation insurance,” says says Adrian Ash, head of research, BullionVault, a silver and gold ownership service for private investors based in London, England. “Unallocated gold thus puts you on-risk for the bank’s financial survival, because the bank owes you metal – which you do not own – and it gets to carry your gold on its balance-sheet as part of its reserved capital requirements.”

Aggressive Online Auctions

Auction sites have seen a surge in gold and silver-coin auctions as spot prices have tripled over the last 5 years. But while the vast majority of them are genuine, bidding can mean final sale prices out-strip spot prices by 25%, even for the plainest coins, Ash says. Rarer gold coins often go higher because newer investors lack knowledge about what they’re buying, he says. Avoid coins marked as “replicas” or coins “modeled” on original gold coins. eBay’s rules specifically say they should be marked “copy.”

Pay Dirt readers, what kind of experiences have you had buying gold?


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    • The 1989 WTC MS69 Silver Eagle appears to be the only $1 eagle that will ever show a poluaption that is on its own in the PCGS poluaption website. All other $1 eagles were included in the mass poluaption numbers for the same year as an ordinary silver eagle NOT recovered at Ground Zero inside the Iron Mountain Vault. The 1989 WTC MS69 $1 Eagle may someday have a price on the PCGS price guide since it is a separate listed coin. PCGS states that they have not priced the coin yet due to to much variation in the average sells price for this coin. But, what do you expect from a coin that has only 65 examples, they are worth as much as their HIGH Demand and True Rarity says they are and the few proud owners will not be willing to part with the coin knowing that it may cost them a second mortgage later to own another one. This Coin is going to be exciting to watch. It is Truly a part of our American History!

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      I would think about also using this free website to blow the whistle if you have been the victim of rogue traders cowboy builders or any other bad company.

    • You have a bit of an amusing typo: “American Canadian Gold Maple Leaf”.

About Pay Dirt

  • Pay Dirt examines the millions of consumer decisions Americans make every day: What to buy, how much to pay, whether to rave or complain. Lead written by Quentin Fottrell, the blog examines these interactions, providing readers with news, insight and tips on shopping, spending, customer service, and companies that do right – and wrong – by their customers. Send items, questions and comments to quentin.fottrell@dowjones.com or tweet @SMPayDirt.