How to Spot A Scam When Buying Gold?

With the rise of gold prices, there are more and more variations on scams involving gold, ranging from fraudulent buy-back schemes, Ponzi schemes to fake gold saga. Gold, being an internationally-recognized precious metal, has become one of the commodities that is most susceptible to scams because of the following reasons:

It is extremely difficult to tell between fake and real gold with the naked eye. It takes very expensive machines to determine the purity of gold. Bullion buyers and general consumers often need to hire professionals to test and certify the gold they hold.
Gold prices go up and down, at the same time different retailers set different prices on the gold products they sell. Most people do not know the true price of gold as jewelries and minted coins are often sold at a 20-30% markup over-the-counter.

Scammers take advantage of these loopholes and create complicated “Gold Investment Schemes” to lure buyers into seemingly-profitable ventures. Unfortunately, many fall prey to empty promises and lose their hard-earned savings in the process. So what are the tell-tale signs that a scheme is a scam?

Busted myth #1: Gold will guarantee a high return on investment/ create income/ pay dividends.

Let’s be clear: gold is a good investment because of its intrinsic value as a precious metal but it does not create income. Gold itself is not capable of generating profit and hence does not pay dividend. There is only one way to make money out of gold — re-sell the gold at a higher price than you bought it at, and this is often possible over a long period of time because the supply of gold grows much slower than the supply of fiat money.

Of course there are ways to create income. One way is to lend the gold and receive an interest. But there’s a always a risk that the borrower will not pay the interest or even return the gold.

Contrary to these facts, most scamming gold-schemes convince customers to invest in gold and promise guaranteed monthly payouts (as “dividends”) and also lucrative “buy-back” prices. If we dig deeper, such business models are sustained by new customers making the initial investment to finance “payouts” to earlier investors, a.k.a Ponzi scheme. Such schemes eventually collapse as the companies run out of funds to pay the guaranteed payouts.

Busted myth #2: Gold is sold at a price below the market price.

Scammers would sell the gold at a “discount” to original prices to entice investors. In reality, the “discount” offered is still a premium to what gold prices really are in the international gold market*. In many instances, buyers are also asked to pay for insurance and shipping cost to obtain the “discounted” gold but received nothing eventually.

Busted myth #3: Unbranded and unsubstantiated claims of pure investment grade gold.

Retail buyers are often at risk of buying into fake gold that seller claims to be pure and authentic. Buyers of unbranded gold bars and coins often need to pay for the gold to be assessed for its authenticity and originality. Unbranded gold products are also not internationally recognised** and the owner may face problems when trying to resell them in the market.

So how can you protect yourself against scams?

First, look out for the signs above. Second, do your own research on gold prices and internationally recognized bullion producers. Useful resources include World Gold Council, LBMA and the Financial Fraud Alert Website of Bank Negara Malaysia. Third, get to know the people and companies who are selling you the gold: their background and track record. Not to forget the general rule-of-thumb when it comes to financial prudence: if something sounds too-good-to-be-true, it probably is.

How does HelloGold fare against these criteria?
HelloGold charges simple and transparent fees to buy, store and sell gold. These fees are fixed at 2% and track the international price of gold all the time. If the price of gold goes up our customers get to gain, but we don’t promise that this will happen. Most importantly our fees are up to 10x lower than what other retailers charge. Too good to be true? We charge such low fees because we have worked out a way to pass on wholesale gold prices to customers while maintaining a lean business with the use of technology to replace brick-and-mortar stores . For example our gold stays in a secure vault in one of the top international financial centres and doesn’t move from there (if customers want to redeem their gold we convert our gold into smaller portions and send them out). We only buy and sell PAMP gold bullion – one of the only 5 refiners deemed good for delivery by the LBMA – and our bars are verified (i.e. audited) by Bureau Veritas.

And does HelloGold have a track record?
HelloGold is a startup built by people with extensive track record in international gold and financial institutions. It’s in partnership with Aeon Credit Services Sdn Bhd, which is listed and regulated by Bank Negara Malaysia. And it’s in the FinLab acceleration program, which is a partnership between UOB Singapore and SGInnovate. Most importantly the company is audited by Deloitte and our processes are audited by Amanie Advisors for Shariah compliance. If these names are not familiar rest assured that Deloitte is one of the “Big Four” global auditing companies and Amanie Advisors are consultants to Bank Negara Malaysia on all matters regarding shariah compliance.

In summary you can trust HelloGold. But don’t take our word for it. Do your own research and give us a call or email us if you have any question.

* International gold spot prices are available on major gold exchanges including London, New York, Zurich and Hong Kong.

** The LBMA produces Good Delivery Lists for accredited gold refiners at http://www.lbma.org.uk/the-good-delivery-list

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