Many individuals use precious metals as a means to preserve their financial wealth. Others allocate a portion of their portfolio to gold as an insurance policy against global and systemic financial threats, or to provide the potential for capital appreciation. Whatever the motivation, investors should be aware of the potential for scams and fraudulent practices within the precious metals dealer industry. By conducting thorough research, verifying licensing, being cautious of unrealistic promises, seeking independent appraisals, and exercising skepticism, investors can mitigate their risk of falling victim to dealer and investment scams.

While there are a number of legitimate gold dealers, some have been accused of engaging in unethical and untrustworthy practices. Dealers operate as retail businesses that buy and sell precious metals directly to individual investors. They must cover operational costs including rent, utilities, staff salaries, and marketing to generate profit. As a result, they must add a markup to the wholesale price they pay for their gold inventory.

During times of high demand for physical bullion, supply constraints can create an imbalance between buyers and sellers. This is often reflected in the market by higher premiums on some bars, coins or rounds. Dealers may also offer a variety of services to their clients, including storage, shipping and insured delivery, all of which can further drive up the cost of the products they offer.

Investors should always carefully weigh these added expenses against the opportunity for capital appreciation before making a purchase decision. In addition, investors should be wary of dealers that quote prices that seem too good to be true, as they likely are. Dealers who are willing to offer extremely low pricing on premium products, for example, are most likely engaged in a bait and switch scheme. The initial, enticing price is designed to draw customers in and then, once they have their attention, the dealer will reveal a much larger list of fees and charges that significantly reduce the final purchase price.

Gold prices have been on a tear lately, bolstering interest in the precious metals dealer industry. This increase in activity has prompted an influx of new dealers, some of which are reputable and others not so reputable. The ANA warns consumers to beware of cold-call solicitations and mobile offices that appear in temporary locations like motels, offering “instant cash for your gold.” Investing in bullion can be expensive, especially when fees, commissions and other transaction costs are taken into account. Some victims of IRA fraud have seen one-third to one-half of their retirement savings drained by excessive markups, fees and commissions on gold purchases.

When investing in gold, it is important to stay diversified and keep your spending levels in line with the performance of your investments. This means tightening your belt and limiting distributions from your portfolio during periods of market decline, or replenishing outside reserves with earned income or part-time work while the value of your investments are low. Doing so can help protect your investment and keep your spending levels in line with your expectations when the markets recover.